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At an output of 10,000 units per year, a firm's total variable costs are $50,000 and its average fixed costs are $2. The total costs per year for the firm are.
The marginal product of labor is directly related to costs of production. Costs are divided between fixed and variable costs. Fixed costs are costs that relate to the fixed input, capital, or rK, where r is the rate of return and K is the quantity of capital.VC = wâL; âLââq the change in quantity of labor to affect a one unit change in output = 1âMP L. Therefore MC = w â MP L. Thus if the marginal product of labor is rising then marginal costs will be falling and if the marginal product of labor is falling marginal costs will be rising (assuming a constant wage rate).