Question

Sarah Sandoval is a coffee farmer trying to decide how many tons of coffee to produce. She can sell each ton of coffee for $2000. The cost of producing the first ton of coffee is $500, for the second ton, it's $1000. For each additional ton of coffee produced, the marginal cost increases by $500. How many tons of coffee should Sarah produce, and what is the total cost of her coffee production

Answer 1

She will produce four tons at a total cost of $5,000

Step-by-step explanation:

For each additional ton of coffee produced the marginal cost is increase by $500. This means that when Sarah reaches the fourth ton of coffee the cost of producing the ton of coffee would be $2,000.

At this point she is neither making any profit nor any loss. So, this would be her maximum limit of producing the ton of coffee.

The total cost of producing the four tons of coffee would be $5,000 ($500 for first + $1,000 for second + $1,500 for third + $2,000 for fourth).