Jessica owns a company that makes pre-packaged sandwiches for convenience stores.The market price for a sandwich is $5 and Jessica is a price-taker.Her daily cost for making sandwiches is C(Q)= 2.5Q + (Q²/40)and her marginal cost is MC = 2.5 + (Q/20).What is the average cost of a sandwich at the quantity of sandwiches Jessica should be selling each day? A) $2.50 B) $2.90 C) $3.75 D) $3.50

Question

Quizplus · Accepted Answer

Jessica should produce where price equals marginal cost (P = MC). Setting $5 = 2.5 + (Q/20), we solve for Q to get Q = 50. The average cost (AC) is C(Q)/Q = (2.5Q + Q^2/40)/Q = 2.5 + Q/40. Substituting Q = 50, AC = 2.5 + 50/40 = 3.75.

Jessica Owns a Company That Makes Pre-Packaged Sandwiches for Convenience