Suppose you have a production technology that can be characterized by a learning

Question

Suppose you have a production technology that can be characterized by a learning curve. Every time you increase production by one unit, your marginal cost decreases by $6. There are no fixed costs, and the first unit costs you $76 to produce.

Use the given information to fill in the marginal cost of each unit, as well as the total cost and average cost of each level of output.

Quantity

Suppose you receive a request for proposal (RFP) on a project for two units.

Your break-even price for two units is? ($) .

Suppose that if you get the contract, you estimate that you can win another project for two more units.

The break-even price for those next two units alone is? ( $ ).

QUANTITY(UNITS) MARGINAL COST($) TOTAL COST($) AVERAGE COST ($/UNIT) 1 $76 $76 $76 2 3 4 5 6

Explanation / Answer

Break-even price for two units = 146 / 2 = $73

Break-even price for those next two units (i.e., 3rd and 4th units) alone = (64 + 58) / 2 = $61

Quantity(Units) MC($) TC($) AC($) = TC/Q 1 76 76 76 2 70 146 73 3 64 210 70 4 58 268 67 5 52 320 64 6 46 366 61

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