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Question
1. A manufacturer of base units for home sensor protection (security, water, carbon monoxide, etc.) produces these units in a small facility in northern Indiana. The firm's engineer has set up "assembly cells" in the facility that she believes will be the most efficient means of producing the units. The following table displays the various costs per hour for producing the units.
Output Per Hour
Total Cost
Fixed Cost
Variable Avg. Total Avg. Fixed
Cost i Cost i Cost
Avg. Variable Cost
Marginal Cost
$
0 100.00 100.00
30.00
5 $
1 130.00 100.00 30.00 130.00 100.00
28.00
$ $ $ $ $ $
2 158.00 100.00 58.00 79.00 50.00 29.00
25.00
3 183.00 100.00 83.00 61.00 33.33 27.67
21.00
S $ $ $ $ $
4 204.00 100.00 104.00 51.00 25.00 26.00
18.00
5 222.00 100.00 122.00 44.40 20.00 24.40
20.00
6 242.00 100.00 142.00 40.33 16.67 23.67
23.00
265.00 100.00 165.00 37.86 14.29 23.57
295.00 100.00
195.00 36.88 12.50 24.38
38.00
333.00
100.00
233.00 37.00 11.11
25.89
Explain why Marginal Costs initially decline but then increase with the sixth unit of production. Which short run production principle is at work here in creating this pattern of Marginal Costs?
Explanation must be in one paragraph long. Answer is clear and persistent.
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