Answer:
a) Average cost of producing 650 units will be $15
Marginal cost will also be $15
b) Marginal cost = $13
Average cost = $14.6
c) Marginal cost = $11
Average cost = $13.8
d) Marginal cost = $11
Average cost = $13
Explanation:
Data provided in the question:
Cost of first 1000 parts = $15 each
Cost of next 1500 parts = $13 each
Cost of parts excess in 2500 = $11 each
Now,
Marginal cost is the additional cost of producing one extra unit of a good
a) 650
Since cost of first 1000 parts in $13 each
Therefore,
as 650 is below 1000 i.e lies in the range of first 1000 units
Average cost of producing 650 units will be $15
Marginal cost will also be $15
b) 1250
the 1251th unit will lie in the range on next 1500 units
Thus,
Marginal cost = $13
Total cost of producing 1250 units
= $15 × 1000 + [(1250 - 1000) × $13]
= $15000 + $3250
= $18,250
Average cost = Total cost ÷ Total units
= $18,250 ÷ 1250
= $14.6
c) 2500
the 2501th unit will lie in the range on excess to 2500 units
Thus,
Marginal cost = $11
Total cost of producing 2500 units
= $15 × 1000 + [(2500 - 1000) × $13]
= $15,000 + $19,500
= $34,500
Average cost = Total cost ÷ Total units
= $34,500 ÷ 2500
= $13.8
(d)3500
the 3501th unit will lie in the range on excess to 2500 units
Thus,
Marginal cost = $11
Total cost of producing 3500 units
= $15 × 1000 + [(2500 - 1000) × $13] + [ ( 3500 - 2500 ) × $11]
= $15,000 + $19,500 + $11,000
= $45,500
Average cost = Total cost ÷ Total units
= $45,500 ÷ 3500
= $13
