Steve owns a bike store. His total costs are $1.2 million per year, his variable costs are $750,000, and his fixed costs are $450,000 per year. Last year, Steve sold 1,200 bikes. If Steve sells 1,250 bikes this year (50 more than last year) and his average total cost increases to $1.28 million, we know that the:

Question

Quizplus · Accepted Answer

We know that Steve's total costs increased from $1.2 million to $1.28 million, which means that his costs increased by $80,000. Since he sold 50 more bikes this year than last year, the marginal cost of producing those additional bikes must be equal to the increase in total costs, which is $80,000. Therefore, the correct answer is D.

Steve Owns a Bike Store