After paying the membership fee for a warehouse club like Costco, members are able to purchase items at a discounted price. Suppose the price of one pound of chicken is $4.99 at a typical grocery store but $2.99 at Costco. Also suppose the annual price of a Costco membership is $60. The marginal cost of your 5th pound of chicken purchased at Costco is:

Question

Quizplus · Accepted Answer

The marginal cost refers to the cost of purchasing an additional unit of a good. In this case, the cost of buying an additional (or the 5th) pound of chicken at Costco is simply the price of one pound of chicken at Costco, which is $2.99. The membership fee is a sunk cost and does not affect the marginal cost of additional purchases.

After Paying the Membership Fee for a Warehouse Club Like