Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Acme Home Builders, Inc
Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct?
a) For the first 24 houses, the average cost per house was $205,000,
b) The marginal cost of the 25th house, if it is built, will equal $250,000,
c) If the company can sell the 25th house for at least $202,000, then it should build it,
d) All of the above are correct.
Expert Solution
- The correct answer is Option B.
a. Let us determine the average total cost for the first 24 houses.
Averagetotalcost=TotalcostQuantityAveragetotalcost=4.80million24Averagetotalcost=0.2millionor200,000Averagetotalcost=TotalcostQuantityAveragetotalcost=4.80million24Averagetotalcost=0.2millionor200,000
The average total cost for the first 24 houses is $200,000.
b. Let us determine the marginal cost of the 25th house.
Marginalcost=ChangeintotalcostChangeinquantityMarginalcost=5.05million−4.80million25−24Marginalcost=0.25millionor250,000Marginalcost=ChangeintotalcostChangeinquantityMarginalcost=5.05million−4.80million25−24Marginalcost=0.25millionor250,000
The marginal cost of the 25th house is $250,000.
c. The company should not build the 25th house if it sells for $202,000 because the marginal cost is greater than the selling price. It will incur a loss or a decrease in profit.
Average Total Cost:
The average total cost tells us how much a firm incurs for each unit of output. It is the mean cost based on the total output produced. It can also be determined by adding the average fixed cost and the average variable cost.
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
