Question

For a certain product, the cost function is linear with fixed costs of $480. If the product will sell for $25 per unit and the break even quantity is 80 units, find the marginal cost and marginal profit for the product.

Answer 1

Answer:

Marginal Cost = $19

Marginal Profit = $6

Explanation:

Break even quantity = $\frac{fixed cost}{contribution per unit}$

80 = $\frac{480}{contribution}$

Contribution = $\frac{480}{80}$ = 6 per unit

Contribution = Sales - Variable cost = $25 - VC = $6

$25 - $6 = VC = $19

Marginal cost is cost incurred for every additional unit produced, i.e. variable cost = $19, as fixed cost remains constant.

Marginal revenue is additional revenue on sale of every unit = contribution per unit = $6

Marginal cost = $19

Marginal Profit = $6