(This problem is somewhat advanced.) Using symbols, we can write that the marginal product of labour is equal to AQ/AL. Marginal cost is equal to ATC/AQ. Because fixed costs by definition don’t change, marginal cost is also equal to A VCj AQ. If Jill Johnson’s only variable cost (VC) is labour cost, then her variable cost is just the wage multiplied by the quantity of workers hired, or wL.

a. If the wage Jill pays is constant, then what is A VC in terms of w and L?

b. Use your answer to part

(a) and the expressions given above for the marginal product of labour and the marginal cost of output to find an expression for marginal cost, ATC/AQ, in terms of the wage, w, and the marginal product of labour, AQ/ A L.

c. Use your answer to part

(b) to determine Jill’s marginal cost of producing pizzas if the wage is $750 per week and the marginal product of labour is 150 pizzas. If the wage falls to $600 per week and the marginal product of labour is unchanged, what happens to Jill’s marginal cost? If the wage is unchanged at $750 per week and the marginal product of labour rises to 250 pizzas, what happens to Jill’s marginal cost?