Formula for Marginal Cost in the Price-Setting Model

A company that pays all its employees the same hourly rate currently has 100 workers. To produce one additional unit of its product per hour, it must hire one more worker. To attract this 101st worker, the company finds it must increase the hourly wage not only for the new employee but for all 100 existing employees as well. Which statement best analyzes the relationship between the cost of producing this additional unit and the average cost of production?

Analyzing Production Costs

A firm operates in an economy where it must increase the hourly wage for its entire workforce to attract additional labor. In this context, the marginal cost of producing one more unit of output is solely determined by the wage paid to the new employee hired to produce that unit.

Production Expansion Decision

A high-income country that successfully reduces its unemployment rate to a very low level has definitively achieved a better labor market outcome than a country with a moderate unemployment rate.