Scenario 7.1:
The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced.
-Refer to Scenario 7.1. The total cost to produce 50 cookies is:
A) $20
B) $25
C) $50
D) $60
E) indeterminate

Question

Quizplus · Accepted Answer

The total cost to produce 50 cookies can be calculated by understanding that the marginal cost is constant at $0.10 per cookie. Therefore, for 50 cookies, the total cost is 50 cookies * $0.10 = $5. However, this calculation only accounts for the variable costs. Since the average total cost (which includes both fixed and variable costs) for 100 cookies is $0.25 per cookie, the fixed costs can be determined by calculating the total cost for 100 cookies and subtracting the variable costs. For 100 cookies, the total cost at $0.25 each is $25, and the variable cost is 100 cookies * $0.10 = $10, leaving $15 as fixed costs. When producing 50 cookies, these fixed costs remain, so the total cost for 50 cookies is the fixed costs ($15) plus the variable costs for 50 cookies ($5), totaling $20.

Scenario 7.1: The Average Total Cost to Produce 100 Cookies Is $0.25