Critiquing a Cost-Benefit Analysis
A junior analyst at a manufacturing firm submits a report stating: 'This month, we increased production from 5,000 units to 5,001 units. Our total production costs rose from $250,000 to $250,020. However, my analysis concludes that producing this extra unit had a net benefit, because the cost of producing that specific 5,001st unit was $0.' Critically evaluate the analyst's conclusion. Is it possible for total costs to increase while the cost of producing the single additional unit is zero? Justify your answer by explaining the inherent mathematical relationship between the change in total costs and the cost of an individual additional unit.
0
1
Tags
Social Science
Empirical Science
Science
Economy
CORE Econ
Economics
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Related
A factory manager makes the following statement: 'As we've increased our production from 1,000 to 1,100 units this month, our total costs have definitely gone up. However, our calculations show that the marginal cost for the 1,100th unit was actually negative.' From a microeconomic perspective, why is this statement contradictory?
A firm observes that its total cost for producing 50 units of a product is $1,000, and its total cost for producing 51 units is $995. This scenario is consistent with the fundamental economic principle that producing more output requires using more resources.
Analyzing Cost Relationships
Evaluating a Manager's Cost Conclusion
Match each production scenario, describing a change in a firm's total cost as it increases its output by one unit, to the logical conclusion about the cost of that single additional unit.
Critiquing a Cost-Benefit Analysis
A company that manufactures chairs observes that its total production cost is $4,000 when it makes 200 chairs. When it produces the 201st chair, its total production cost rises to $4,025. Therefore, the cost associated with producing only that single, additional 201st chair is $____.
A firm observes that its total costs rise when it increases its level of production. Arrange the following statements into a logical sequence that explains why this observation leads to the conclusion that the cost of producing an additional unit must be positive.
A firm's production manager provides the following data regarding the total cost of producing different quantities of a good:
- 100 units cost $5,000 total.
- 101 units cost $5,050 total.
- 102 units cost $5,110 total.
- 103 units cost $5,160 total.
- 104 units cost $5,155 total.
- 105 units cost $5,215 total.
Which of the following statements accurately analyzes this cost data in the context of production principles?
A manufacturing firm observes that its total cost of production is always higher for any given quantity of output compared to any smaller quantity of output. Given this fact, it is logically possible for the marginal cost associated with producing one specific unit to be exactly zero.