The average cost per unit at production level x is defined as C avg (x) = C(x)/x,
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The average cost per unit at production level x is defined as Cavg(x) = C(x)/x, where C(x) is the cost of producing x units. Average cost is a measure of the efficiency of the production process.
The cost in dollars of producing alarm clocks is given by C(x) = 50x3 − 750x2 + 3740x + 3750, where x is in units of 1000.
(a) Calculate the average cost at x = 4, 6, 8, and 10.
(b) Use the graphical interpretation of average cost to find the production level x0 at which average cost is lowest. What is the relation between average cost and marginal cost at x0 (see Figure 16)?
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