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Marginal vs. Average Cost Decision-Making
A software company has spent $1,000,000 developing a new program. So far, it has sold 100,000 copies, making the average cost per copy $10. A new customer offers to buy one additional copy for $1. Assuming the cost of creating and delivering this additional digital copy is virtually zero, explain using the concept of the cost of producing an additional unit why it would be economically rational for the company to accept this offer. How does this differ from a decision based on the average cost?
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Decreasing Marginal Cost
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Marginal vs. Average Cost Decision-Making
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A company's total cost to produce 200 units of a product is $5,000. When it increases production to 201 units, its total cost rises to $5,025. Based on this information, the marginal cost of producing the 201st unit is $____.
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Short Run