6

7

8

9

TABLE 7.5

Now focus on the whole number quantities of output. We’ll eliminate the fractions from the table:

Widgets (Q)

1

2

3

Workers (L)

3.25 4.4 5.2

4

9

TABLE 7.6

Suppose widget workers receive $10 per hour. Multiplying the Workers row by $10 (and eliminating the

blanks) gives us the cost of producing different levels of output.

Widgets (Q)

1.00

2.00

3.00

4.00

Workers (L)

3.25

4.4

5.2

9

× Wage Rate per hour

$10

$10

$10

$10

= Cost

$32.50 $44.00 $52.00 $90.00

TABLE 7.7

This is same cost function with which we began! (shown in Table 7.3)

Now that we have the basic idea of the cost origins and how they are related to production, let’s drill down into

the details.

Average and Marginal Costs

The cost of producing a firm’s output depends on how much labor and physical capital the firm uses. A list of

Access for free at openstax.org
7.3 • Costs in the Short Run 167
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