Answer to Question #156596 in Macroeconomics for nawal fatima

Question

1) You are the chief financial officer for a firm that sells digital music players. Your firm has the following average-total-cost schedule:

Quantity Average          Total Cost

600 players                          $300

601                                301

Your current level of production is 600 devices, all of which have been sold. Someone calls, desperate to buy one of your music players. The caller offers you $550 for it. Should you accept the offer? Why or why not?

Answer 1

The total cost of 600 players is

= 600 × $300

= $180,000

The total cost of 601 players is

= 601 × $301

= $180,901

Now the marginal cost is 601 player is $901 which is difference between the $180,000 and $180,901 that is higher than the offered price i.e $550

Therefore, the offer should not be accepted