187k views
2 votes
b. Suppose that for each 25,000-bottle-per-day increase in production above 100,000 bottles per day, TC increases by $5,000 (so that, for instance, 125,000 bottles per day would generate total costs of $130,000 and 150,000 bottles per day would generate total costs of $135,000). Is this a decreasing-cost industry?

User Poonam
by
7.9k points

1 Answer

0 votes

Answer:

The answer is: Yes, it's a decreasing cost industry.

Step-by-step explanation:

Currently the total cost per unit is:

  • $130,000 / 125,000 bottles = $1.04 per bottle

If the total costs increase by $5,000 for every 25,000 extra bottles produced, then the total cost per unit is:

  • $135,000 / 150,000 bottles = $0.90 per bottle

If the bottle production keeps increasing to 175,000 bottles, the total costs will only increase by $5,000. So the total cost per unit is:

  • $140,000 / 175,000 bottles = $0.80 per bottle

So as the production level increases, the cost per unit decreases.

User Galmok
by
7.5k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.