Use the information below to answer the following questions.
Fact 14.3.3
Suppose that Roots' marginal cost of a jacket is a constant $125.00 and the total fixed cost at one of its stores is $1,500 a day. This store sells 20 jackets a day, which is its profit-maximizing number of jackets. Then the stores nearby start to advertise their jackets. The Roots store now spends $2,000 a day advertising its jackets, and its profit-maximizing number of jackets sold jumps to 70 a day.
-Refer to Fact 14.3.3. After the advertising begins, the average total cost of a jacket sold in this store is

Question

Quizplus · Accepted Answer

The formula for average total cost is (total cost) / (quantity).
Before advertising, the total cost for selling 20 jackets is: 
Total Cost = Fixed Cost + (Marginal Cost x Quantity) 
Total Cost = $1,500 + ($125 x 20) 
Total Cost = $1,500 + $2,500 
Total Cost = $4,000 
Therefore, the average total cost is $4,000 / 20 = $200.00 per jacket. 
After advertising, the total cost for selling 70 jackets is: 
Total Cost = Fixed Cost + Advertising Cost + (Marginal Cost x Quantity) 
Total Cost = $1,500 + $2,000 + ($125 x 70) 
Total Cost = $1,500 + $2,000 + $8,750 
Total Cost = $12,250 
Therefore, the average total cost is $12,250 / 70 = $175.00 per jacket.

Use the Information Below to Answer the Following Questions