Answer:
Explanation:
First, write down Total fixed cost for each;
Fixed cost; Saab = $1,000,000,000
Fixed cost; Volvo = $1,000,000,000
Next find the Total Variable cost (TVC)
TVC = # of cars per year * marginal cost per car
Saab ; TVC = 50,000* $10,000 = $500,000,000
Volvo ; TVC = 200,000* $10,000 = $2,000,000,000
Average production cost = (Fixed cost + total variable cost) / # of cars per year
Saab = ($1,000,000,000 + $500,000,000)/ 50,000 = $30,000
Volvo = ($1,000,000,000 + $2,000,000,000)/ 200,000 = $15,000
