A. Suppose you are the owner of a soft drink bottle manufacturing firm. You just

Question

A. Suppose you are the owner of a soft drink bottle manufacturing firm. You just opened your business and it turned out that the cost of producing the first bottle was substantial because you have to purchase machines & raw materials, hire people, and rent a building. But as you produce more, you discovered that the total cost per one bottle gradually decreases.

- What concept is being explained (from chapter 11) in the given example? Answer this using at least 150 words.

- In the new testament(bible), the concept of cost (sacrifice) and revenue (rewards) are embodied here and there. Read Mark 8 in the Bible, and discuss briefly describe how it relates to the economic concept of cost and/or revenue

Explanation / Answer

The concept here being talked about is that of Diminishing Marginal Costs.

Cost is made up of Fixed and Variable Costs.

When a businessman starts his business, there is a very high fixed cost that is incurred, as mentioned (purchase machines & raw materials, hire people, and rent a building). But as he increases production and produces subsequent units, the fixed cost gets spread over the increasing units and he just has to incur the variable cost on the subsequent units.

As a result, the Total Cost incurred on the first few units is greater than the total cost on the subsequent units.

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