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1) The Framing Gallery frames posters
1) The Framing Gallery frames posters. The Framing Gallery has total fixed costs of $500. The Framing Gallery's averaging variable cost is $20 and its average total cost is $25. The Framing Gallery is currently framing
a. 5 posters
b. 25 posters
c. 100 posters
d. A number of posters that is indeterminate from this information
2. The average variable cost of producing ice cream sundaes are minimized when 100 sundaes are produced. The total cost of producing 100 sundaes is $500. If fixed cost of production is $200, what is the marginal cost of producing the 100th sundae?
a. $2
b. $3
c. $5
d. Indeterminate from the given information
Expert Solution
Total cost= Fixed cost + variable cost*quantity produced
1. Fixed cost= $500
Variable cost=$20
Average total cost=$25
Average total cost= Total cost/ Quantity produced
Let 'x' quantity is produced.
25=Total cost/x=(Fixed cost + variable cost*x)/x
25=(500+20*x)/x
5x=500
x=100
The Framing gallery is producing 100 posters. Therefore, option (c) is correct.
2. Total cost of producing ice-cream 100 sundaed is $500.
Fixed cost of production=$200
Marginal cost of producing 100th sundae is the variable cost.
Let the variable cost be y
500=200+100y
y=3
Therefore, option (b) is correct.
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