Question

For a certain product, the cost function is linear with fixed costs of $480. If the product will sell for $25 per unit and the break even quantity is 80 units, find the marginal cost and marginal profit for the product.

Answer 1

Marginal Cost = $19

Marginal Profit = $6

Step-by-step explanation:

Break even quantity =
`(fixed cost)/(contribution per unit)`

80 =
`(480)/(contribution)`

Contribution =
`(480)/(80)` = 6 per unit

Contribution = Sales - Variable cost = $25 - VC = $6

$25 - $6 = VC = $19

Marginal cost is cost incurred for every additional unit produced, i.e. variable cost = $19, as fixed cost remains constant.

Marginal revenue is additional revenue on sale of every unit = contribution per unit = $6

Marginal cost = $19

Marginal Profit = $6