Question

It costs a company $35,000 to produce 500 graphing calculators. The company’s cost will be $35,080 if it produces an additional graphing calculator. If the company produces 501 graphing calculators then a. its average cost is greater than its marginal cost. b. its average cost and its marginal cost are equal. c. its average cost is less than its marginal cost. d. This cannot be determined from the information given.

Answer 1

C) its average cost is less than its marginal cost.

Step-by-step explanation:

average total cost per calculator (when 500 calculators are built) = $35,000 / 500 calculators = $70 per calculator

average total cost per calculator (when 501 calculators are built) = $35,080 / 500 calculators = $70.02 per calculator

marginal cost of producing calculator 501 = total cost - cost of producing 500 calculators = $35,080 - $35,000 = $80

The average total cost per calculator is lower than the marginal cost of producing the 501th calculator ⇒ $80 > $70.02