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Two car manufacturers, Saab and Volvo, have fixed costs of $1 billion and marginal costs of $10,000 per car. If Saab produces 50,000 cars per year and Volvo produces 200,000, calculate the average production cost for each company.

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beritop1089

Answer:

Explanation:

First, write down Total fixed cost for each;

Fixed cost; Saab = $1,000,000,000

Fixed cost; Volvo = $1,000,000,000

Next find the Total Variable cost (TVC)

TVC = # of cars per year * marginal cost per car

Saab ; TVC = 50,000* $10,000 = $500,000,000

Volvo ; TVC = 200,000* $10,000 = $2,000,000,000

Average production cost = (Fixed cost + total variable cost) / # of cars per year

Saab = ($1,000,000,000 + $500,000,000)/ 50,000 = $30,000

Volvo = ($1,000,000,000 + $2,000,000,000)/ 200,000 = $15,000

Tundexi

The average production cost for each company for Saab and Volvo is $30,000 and 15,000.

Given data

Fixed cost; Saab = $1,000,000,000

Fixed cost; Volvo = $1,000,000,000

What is the Total Variable cost (TVC)?

Saab

= 50,000* $10,000

= $500,000,000

Volvo

= 200,000* $10,000

= $2,000,000,000

What is the Average production cost?

= (Fixed cost + total variable cost) / # of cars per year

Saab

= ($1,000,000,000 + $500,000,000)/ 50,000

= $30,000

Volvo

= ($1,000,000,000 + $2,000,000,000)/ 200,000

= $15,000

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