- October 19, 2022 at 6:27 pm #669383aakarsh715Participant
- Topics: 27
- Replies: 7
ABC Company is about to launch a new product. Facilities will allow the company to produce up to 20 units per week.
The marketing department has estimated that at a price of $8,000 no units will be sold, but for each $150 reduction in price one additional unit per week will be sold.
Fixed costs associated with manufacture are expected to be $12,000 per week.
Variable costs are expected to be $4,000 per unit for each of the first 10 units; thereafter each unit will cost $400 more than the preceding one.
The most profitable level of output per week for the new product is:
A 10 units
B 11 units
C 13 units
D 20 units
In P= a-bQ
a will be 8000
b will be 150
MC = 400
I am getting the answer of 25 units.
Can you please explain me the marginal cost to be used in this question to derive the optimal quantity? I am stuck!!!October 20, 2022 at 7:14 am #669400John MoffatKeymaster
- Topics: 56
- Replies: 53174
The marginal cost keep changing. It is not 400 because the 11th unit would cost 4,400, the 12th unit would cost 4,800 and so on.
The easiest way would be to use the tabular approach.
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