Question

BMC is considering upgrading the sound systems in their theaters so that their patrons can get the full experience from surround sound movies. They discovered that upgrade costs at locations with 12 screens were $170,000 but were $110,000 at locations with six screens. What are the fixed costs of upgrading at a location? What are the marginal costs of upgrading another screen at a location? Hint: TC = FC + VC.

Answer 1

Answer:

Fixed cost = $50,000

Marginal costs= $10,000

Explanation:

The costs of upgrading 12 screens = $170,000

The cost of upgrading 6 screens = $110,000

The difference between 12 screens At $170,000 and 6 screens at $110,000 represents the variable cost of 6 screens (12 - 6)

=$170,000 - $110,000 = 60,000

Variable costs for 6 screens = $60,000

Variable costs per screen = $60,000/ 6

=$10,000

Its cost $170,000 to upgrade 12 screens. variable costs per screen = $10,000

Fixed costs = $170,000 -( $10,000 x 12)

Fixed costs= $170,000 -$120,000

Fixed costs= $50,000

Marginal cost is the cost of upgrading one more screen, which is equivalent to variable costs for one screen

=$10,000