A computer company produces affordable, easy-to-use home computer systems and has fixed costs of $250. The marginal cost of producing computers is as indicated below. Output Fixed CostVariable CostTotal CostMarginal CostAverage CostAverage Variable Cost1$250$700$950$700 2$250$925$1175$225 3$250 $315 4$250 $360 5$250 $400 6$250 $450 7$250 $550 If the company sells the computers for $550, is it making a profit or a loss? How big is the profit or loss?If the firm sells the computers for $315, is it making a profit or a loss? How big is the profit or loss?We expect the marginal cost to increase as this firm produces more computers. But when the firm shifts from producing 1 to 2 computers, marginal cost falls. What might explain this?

We have data, of costs for a firm along with the level of production. Where the Fixed cost is $250…

Answered: A computer company produces affordable,…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter7: Economies Of Scale And Scope

Section: Chapter Questions

Problem 5MC

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A computer company produces affordable, easy-to-use home computer systems and has fixed costs of $250. The marginal cost of producing computers is as indicated below.

Output	Fixed Cost	Variable Cost	Total Cost	Marginal Cost	Average Cost	Average Variable Cost
1	$250	$700	$950	$700
2	$250	$925	$1175	$225
3	$250			$315
4	$250			$360
5	$250			$400
6	$250			$450
7	$250			$550

If the company sells the computers for $550, is it making a profit or a loss? How big is the profit or loss?
If the firm sells the computers for $315, is it making a profit or a loss? How big is the profit or loss?
We expect the marginal cost to increase as this firm produces more computers. But when the firm shifts from producing 1 to 2 computers, marginal cost falls. What might explain this?

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