The table shows the marginal cost for a company\'s product at various production

Question

The table shows the marginal cost for a company's product at various production levels. Marginal cost Marginal cost Units ($/unit) 7000 8000 9000 Units($/unit) 1000 2000 3000 4000 5000 6000 3.24 2.87 2.77 2.74 2.55 2.47 2.27 2.19 2.18 2.20 2.24 2.38 2.62 2.83 10,000 11,000 12,000 13,000 (a) Estimate the cost (not including fixed costs) to produce the first 12,000 units by considering batches of 2000 units. Use the initial marginal cost for each batch in your calculations (b) Use batches of 1000 units and the ending marginal cost for each batch to estimate the cost of raising the production level from 4000 to 11,000 units

Explanation / Answer

(a) Cost = 2000(3.24 + 2.77 + 2.55 + 2.27 + 2.18 + 2.24)

             = 2000 * 15.25

            = $30,500

(b) Cost = 1000(2.47 + 2.27 + 2.19 + 2.18 + 2.20 + 2.24 + 2.38)

             = 1000 * 15.93

             = $15,930

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