Refer to the following figure.The price of capital is $50 per unit: What is the minimum cost of producing 1,200 units of output?
A)$7,000
B)$8,000
C)$9,000
D)$10,000
E)$11,000

Question

Refer to the following figure.The price of capital is $50 per unit:  What is the minimum cost of producing 1,200 units of output?
A)$7,000 
B)$8,000 
C)$9,000 
D)$10,000 
E)$11,000

Quizplus · Accepted Answer

The minimum cost of producing 1,200 units of output is the point where the marginal cost (MC) curve intersects with the average total cost (ATC) curve. In the given figure, the MC curve intersects the ATC curve at the point where the output level is around 1200 units. At this output level, the ATC is $8 per unit. Therefore, the minimum cost of producing 1,200 units of output is 1200 × $8 = $9,600. However, since the fixed cost (FC) is $4000 (the distance between the ATC curve and the vertical intercept), the total cost is $9,600 + $4,000 = $13,600. Thus, the best choice is D, which is $10,000 (closest to $13,600).

Refer to the Following Figure