Question

Pablo owns a record store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Pablo sold 1,200 records. If Pablo sells 1,250 records this year (50 more than last year) and his average total cost increases to $1.28 million, we know that the: ________
a. average variable cost of selling records has decreased.
b. marginal cost of those 50 records is $80,000.
c. average fixed cost of selling records is unchanged.
d. marginal cost of those 50 records is $1.28 million.
e. average total cost of selling 1.250 records is $1,000.

Answer 1

Answer:

b. marginal cost of those 50 records is $80,000.

Explanation:

The computation is shown below:

The average cost of selling 1,200 records is

= $1,200,000 ÷ 1,200

= $1,000

Now

The average total cost of selling 1,250 records is

= $1,280,000 ÷ 1,250

= $1,024

Now for the extra 50 records, the marginal cost is

= $1,280,000 - $1,200,000

= $80,000

Hence, the correct option is b.