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I calculated the Marginal cost for the below question. But it seems the results are wrong

After coming up with an innovative idea for a new product, you paid 4000 to an industrial designer to draw the blueprints and found a factory in China that agreed to produce the product for you for $3 per unit (the price includes the shipping cost from China to you).

Since this is a totally new and unique product, you have no idea how the demand for it would be. Therefore, before you start pricing the product and ordering large amounts from the Chinese factory, you decide to run an experiment (or a pilot study): you talk to Target and they allow you to sell your product at 11 different Target stores for 11 different prices (a different price at each store). These stores are located in areas whose residents have similar average income, so you can be certain that price (and not income) is the only factor varying among these stores.

I took the fixed cost as 4000 The variable cost was taken as 3.

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When the MC was calculated, it was given as 3. I feel this is not correct and there is something not correct here.

Can someone kindly point it out.

Is the fixed price taken was incorrect? or the variable cost incorrect?

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  • $\begingroup$ MC = 3, FC = 4000 $\endgroup$ – Vizag Apr 23 at 10:10
  • $\begingroup$ yes vizag. Thats how the calculation looked like. $\endgroup$ – Hiru Apr 23 at 10:44
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The marginal cost is the cost added of producing an additional unit of product. In this case the company is paying a factory in China \$3 per unit to produce the product. Assuming you have no other variable costs (i.e. costs that vary with level of output) then the cost of producing an additional unit is indeed $3.

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  • $\begingroup$ whats the issue with my answer. Hope the variable cost is calculated correctly. What should be the fixed cost? $\endgroup$ – Hiru Apr 23 at 10:16
  • $\begingroup$ No issue! I deleted this comment now $\endgroup$ – user20105 Apr 23 at 10:26

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