Study notes

Average and Marginal Cost of Labour

  • Levels: A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Other, Pre-U, Eduqas, WJEC

The marginal cost of employing labour is the change in total labour costs from employing one extra worker.

A numerical example

Assume that a business employs 100 workers at an average wage of £400 per week

It wants to take on ten extra workers and to do this it offers a slightly higher average wage (paid to all workers) of £410 per week

Simple calculations:

When 100 workers are employed, total labour costs (per week) = 100 x £400 = £40,000

When 110 workers are employed, total labour costs (per week) = 110 x £410 = £45,100

Employing an extra ten workers is costing the firm in total an extra £5,100 per week

For each extra workers, the marginal cost is £510 per week

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Teacher of Economics

International School of Milan, Milan, Italy

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