17 A company has a fixed cost of 100000 and a per unit cost

17. A company has a fixed cost of $100,000 and a per unit cost of $25 what is the average cost per unit if they make 400,000 units. 8. Referring to question 17. What is marginal cost of making the 250,000h unit?

Solution

1) Fixed cost of the company = $100,000.

Cost of producing one unit of product = $25

Cost of making 400,000 units = $25 x 400,000 = $10,000,000

Avergae cost per unit = AVC = total cost / total product

= 10,000,000 + $100,000 / 400,000

= $25.25.

2) Marginal cost = change in product / Change in cost

= 250,000 - 400,000 / 63,50,000 - 10,100,000

= -150000 / -3750000

= 0.04 (negative sign doesnt matter here, so just ignore it.)

The marginal cost of producing 250,000 unit is $ 0.04.