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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Suppose Honda's total cost of producing 4 cars is $225,000 and its total cost of producing 5 cars is $250,000. What is the average total cost of producing 5 cars? What is the marginal cost of the fifth car? • Draw the marginal-cost curve and the average-total-cost curve for a typical firm, and explain why these curves cross where they do.

To determine
Marginal cost for a fifth car.

Explanation

If Honda’s total cost of producing 5 cars is $250,000, then the average total cost of production can be calculated as follows:

Average total cost=(Total costQuantity)=(250,0005)=50,000

Thus, the value of average total cost is $56,250.

Honda increases its production from 4 to 5 and its total cost increases from 225,000 to 250,000. The marginal cost can be calculated as follows:

Marginal cost=(Total costOldTotal costNewQuantit

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