Question

A new machine comes with 200 free service hours over the first year. Additional time costs $150 per hour. What are the average and marginal costs per hour for the following quantities? a) 125 b) 225 c) 325

Answer 1

(a) 0; 0

(b) $150 per hour; $16.67 per hour

(c) (b) $150 per hour; $53.57 per hour

Step-by-step explanation:

(a) Number of hours = 125

Marginal cost = 0 (since service is cost less upto 200 hours)

Average cost = 0

(b) Number of hours = 225

Marginal cost = $150 per hour

Total cost = $150 × (225 - 200)

= $150 × 25

= $3,750

Average cost = Total cost ÷ Number of hours

= $3,750 ÷ 225

= $16.67 per hour

(c) Number of hours = 325

Marginal cost = $150 per hour

Total cost = $150 × (325 - 200)

= $150 × 125

= $18,750

Average cost = Total cost ÷ Number of hours

= $18,750 ÷ 325

= $53.57 per hour