Question

You run a game-day shuttle service for parking services for the local ball club. Your total costs for different customer loads are 0: $27, 1: $30, 2: $32, 3: $35, 4: $38, 5: $42, 6: $48, 7: $57, and 8: $68. a. For each customer load level beginning with 1, what is your average total cost? b. For each customer load level beginning with 1, what is your marginal cost? c. If you are compensated $9 per ride, what customer load would you want?

Answer 1

Answer and Explanation:

a and b. The average total cost and the marginal cost is shown below:

As we know that

Average cost is

= Total cost ÷ total number of customer loads

And, the Marginal cost is

= Additional total cost incurred for extra units generated

So based on this, the marginal cost and the average total cost are as follows

Customer load level Total cost Average cost Marginal cost

0 $27

1 $30 $30 ÷ 1 = 30 30 - 27 = 3

2 $32 $32 ÷ 2 = 16 32 - 30 = 2

3 $35 $35 ÷ 3 = 11.67 35 - 32 = 3

4 $38 $38 ÷ 4 = 9.5 38 - 35 = 3

5 $42 $42 ÷ 5 = 8.4 42 - 38 = 4

6 $48 $48 ÷ 6 = 8 48 - 42 = 6

7 $57 $57 ÷ 7 = 8.14 57 - 48 = 9

8 $68 $68 ÷ 8 = 8.5 68 - 57 = 11

c. Now the customer loan you want is

As we know that

Profit = Marginal revenue - marginal cost

And, as we can see that at marginal cost 9 we can load 7 customers so the 7 customers would be wanted