Solve the problem.A company has fixed costs of $800 and the linear cost function is Which do you think is larger, the average cost per item of producing n items or the marginal cost given that n items have been produced? Explain your thinking. Under what conditions would the marginal cost and the average cost per item be the same?

Question

What will be an ideal response?

Answer 1

The average cost per item is larger than the marginal cost. The marginal cost is the additional cost of producing one extra item and is just  The average cost per item to produce n items is   The fixed costs contribute to the average cost per item but not to the marginal cost. The marginal cost and the average cost per item would be the same if there were no fixed costs.