Question

Rami Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.2 million. If the company builds a 25th house, its total cost will increase to $4.375 million. Which of the following statements is correct? For the first 24 houses, the average cost per house was $170,000 The marginal cost of the 25th house, if it is built, will equal $175,000. If the company can sell the 25th house for at least $167,000, then it should build it. The company should never build the 25th house because this increases its total cost. 1 pts

Answer 1

The marginal cost of the 25th house, if it is built, will equal $175,000.

Total cost (TC) is the term used in economics to describe the lowest possible cost of producing a certain amount of product.

The total economic cost of production is comprised of two components variable cost, which varies depending on the amount of a good produced and includes inputs like labor and raw materials, and fixed cost, which is separate of the amount of a product generated and includes inputs like buildings and machinery that cannot be changed in the brief term, conceivably including sunk costs.

The marginal cost, or the price of producing more, is the adjustment to the overall cost in economics that results from increasing the quantity produced.

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