Question

The function yields the average cost in dollars for a company to produce x calendars. Which statement best fits the situation modeled by the function?

1) The company spends $600 on a new computer and printer before beginning the project.
2) The company takes 600 photos before selecting which ones to use for its calendars.
3) The company expects to sell 600 calendars each month.
4) The company will sell the calendars for $2.00 each.

Answer 1

The best-fitting situation for the average cost function is the company's expenditure on computer and printer, which are fixed costs affecting the average cost of producing calendars.

Step-by-step explanation:

The function in question calculates the average cost of producing x calendars for a company. Out of the given statements, the one that best fits the situation modeled by the function is that the company spends $600 on a new computer and printer before beginning the project.

This statement is related to fixed costs - costs that do not change with the level of production - which is a concept consistent with the average cost function in economics.

Considering fixed costs and marginal costs is essential in calculating the average cost. The fixed cost of $600 on equipment would be spread out over the number of calendars produced, thereby influencing the average cost. Marginal cost refers to the expense of producing one additional unit.

As part of our explanation, we will use Figure 7.9 from a chapter that illustrates the idea of economies of scale, where the average cost of production decreases as the number of outputs increases - a concept that also applies to the production of calendars.