Suppose you have a production technology that can be characterized by a learning curve. Every time you increase production by one unit, your marginal cost decreases by $6. There are no fixed costs, and the first unit costs you $76 to produce. Use the given information to fill in the marginal cost of each unit, as well as the total cost and average cost of each level of output. Quantity Marginal Cost Total Cost Average Cost (Units) ($) ($) ($/unit) 1 $76 $76 $76 2 $ $ $ 3 $ $ $ 4 $ $ $ 5 $ $ $ 6 $ $ $ Suppose you receive a request for proposal (RFP) on a project for two units. Your break-even price for two units is $ . Suppose that if you get the contract, you estimate that you can win another project for two more units. The break-even price for those next two units alone is $ .

a) Learning Costs Curve:

Quantity       Marginal           Total Cost ($)             Average Cost (Units)

                      Cost ($)                                                   ($/unit)

      1                $76                        $76                        $76

      2               $70                        $146                       $73

      3               $64                        $210                       $70

      4               $58                        $268                      $67

      5               $52                       $320                      $64

      6               $46                       $366                      $61

b) For a request for proposal for two units,  the break-even price for the two units is $146 ($73 per unit).

c) For two more units, the break-even price for them alone is $122 ($268 - $146).  Each unit's break-even price will be $61 ($122/2).

Explanation:

a) A break-even price is a price that is equal to the total cost.  At break-even, there is no profit and there is no loss.  The total cost equals total revenue.

b) The learning cost curve shows how the "marginal cost decreases as a result of an increase in production by one unit."  This curve can be illustrated graphically to show how the marginal and average costs reduce as a result of the increase in the quantity produced.

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know

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