A firm has a fixed cost of $200 in its first year of operation. When the firm produces 99 units of output, its total costs are $4,000. The marginal cost of producing the 100th unit of output is $700. What is the total cost of producing 100 units?
A)$900
B)$4,200
C)$4,700
D)$4,900

Question

Quizplus · Accepted Answer

We know that when the firm produces 99 units of output, its total costs are $4,000. This means that the average cost per unit for the first 99 units is $40.40 ($4,000 divided by 99 units).

We can use the formula for marginal cost to find the cost of producing the 100th unit:
MC = (Change in Total Cost) / (Change in Quantity)
$700 = (Total Cost of 100 units - Total Cost of 99 units) / (100 units - 99 units)
$700 = (Total Cost of 100th unit) - $40.40
Total Cost of 100th unit = $740.40

To find the total cost of producing 100 units, we sum the fixed cost of $200, the cost of producing the first 99 units ($4,000), and the cost of producing the 100th unit ($740.40):
Total Cost = $200 + $4,000 + $740.40
Total Cost = $4,940.40
Therefore, the best choice is (C).

A Firm Has a Fixed Cost of $200 in Its