The Toys-R-Danger-Us Toy Company can produce 500 water pistols for a total cost of $1, 400.The company can also produce 1, 000 water pistols for a total cost of $3, 000, but it would have costs of $200 even if it produced no water pistols.Which of the following is true?

Question

Quizplus · Accepted Answer

To find the answer, we need to calculate the marginal cost for producing 500 water pistols and 1,000 water pistols.

For 500 water pistols:

Total Cost (TC) = $1,400
Quantity (Q) = 500

Average Total Cost (ATC) = TC/Q = $1,400/500 = $2.80

For 1,000 water pistols:

Total Cost (TC) = $3,000 + $200 (fixed cost)
Quantity (Q) = 1,000

Average Total Cost (ATC) = TC/Q = ($3,200)/1,000 = $3.20

Marginal Cost (MC) = Change in Total Cost / Change in Quantity
MC = ($3,200 - $1,400) / (1,000 - 500)
MC = $1,800 / 500
MC = $3.60

Since marginal cost is positive and increasing as output increases, option C is correct. Option A is incorrect because total cost is not increasing at a decreasing rate. Option B is incorrect because total cost is not increasing at a constant rate. Option D is incorrect because variable cost is not decreasing as output increases. Option E is incorrect because fixed cost is not decreasing as output increases.

The Toys-R-Danger-Us Toy Company Can Produce 500 Water Pistols for a Total