Assume that you know the following cost information about Fred's widget company: Its fixed cost is $9,and its total variable cost is $6 for 1 unit; $11 for 2; $ 15 for 3; 20 for 4; and 26 for 5.Given the above information,
A) the marginal cost of the third unit is greater than the marginal cost of the first unit.
B) the marginal cost of the fourth unit is the same as the marginal cost of the second unit.
C) the average variable cost of four units is the same as for three units.
D) both (b) and (c) are correct.

Question

Quizplus · Accepted Answer

Marginal cost is the additional cost incurred in producing one more unit. Looking at the given information, we can see that the marginal cost of the third unit is $4 ($15 - $11), which is greater than the marginal cost of the first unit ($6). Also, the marginal cost of the fourth unit is $5 ($20 - $15), which is the same as the marginal cost of the second unit ($11 - $6 = $5).

Average variable cost is the total variable cost divided by the number of units produced. The average variable cost of three units is ($6 + $11 + $15) / 3 = $10.67. The average variable cost of four units is ($6 + $11 + $15 + $20) / 4 = $13. The two averages are not the same. Therefore, option C is incorrect.

Combining the above analysis, we can see that both options (b) and (c) are incorrect, and the correct choice is D.

Assume That You Know the Following Cost Information About Fred's