Question

A firm has a fixed cost of $500 in its first year of operation. When the firm produces 100 units of output, its total costs are $3,500. When it produces 101 units of output, its total costs are $3,750. What is the marginal cost of producing the 101st unit of output? a. $250 b. $275 c. $340.91 d. $350

Answer 1

option (a) $250

Explanation:

Data provided in the question:

Fixed cost = $500

For 100 units produced Total cost = $3,500

For 101 units produced, Total cost = $3,750

Now,

Marginal cost is calculated as:

Marginal cost =
`\frac{\textup{Total change in cost of producing more goods}}{\textup{Total change in produced goods}}`

thus,

Marginal cost =
`\frac{\textup{Total cost of 101 units - Total cost of 100 units}}{\textup{101-100}}`

or

Marginal cost =
`\frac{\textup{3,750-3,500}}{\textup{1}}`

or

Marginal cost = $250

Hence,

The correct answer is option (a) $250