Question

Suppose you have two types of customers. Type 1 customers typically purchases your firm's product in bundles of 100 units, while type 2 customers typically purchase less than 10 units. The cost of producing one unit is $1 plus packaging costs. Packaging costs $1 per unit for small orders, but only $10 for a bundle of 100 units. Finally, suppose type 1 buyers have a price elasticity of demand equal to -2, while type 2 buyers have an elasticity equal to -1.25. a. What is the marginal cost of selling 100 units to a Type 1 buyer

Answer 1

Answer:

The marginal cost of selling 100 units to a Type 1 buyer is $110

Explanation:

In order to calculate the marginal cost of selling 100 units to a Type 1 buyer we would have to use the following formula:

Marginal Cost of selling 100 units to type 1 buyer=MC1= Marginal Cost of producing 100 units+Packaging cost

Therefore, Marginal Cost of selling 100 units to type 1 buyer=MC1

=1*100+10=$110

The marginal cost of selling 100 units to a Type 1 buyer is $110