Question

A movie studio has some costs even if it produces no movies at all in a given year. These are the costs of having an office and studio staffed with the minimum staff. The fixed cost amounts to $1 million. If the studio produces one movie in a year, the studio's total cost equals $26 million. If the studio produces two movies, the studio's total cost equals $52 million. If the studio produces three movies in a year, the studio's total cost equals $82 million.

Part 1 :

Suppose the movie studio produces only one movie in a given year. The studio's marginal cost of producing this movie is $ _________   million.

Part 2:

Suppose instead that the firm produces two movies in a given year. The marginal cost of the last movie is $____________     million.

Answer 1

Ans: Part 1 : Suppose the movie studio produces only one movie in a given year. The studio's marginal cost of producing this movie is $25  million.

Ans: Part 2: Suppose instead that the firm produces two movies in a given year. The marginal cost of the last movie is $26 million.

Explanation:

Total Cost = Fixed cost + Variable cost

Marginal Cost = Change in Total Cost / Change in quantity

Marginal cost of 1st movie = ( $26 million - $25 million) / ( 1 - 0 ) = $25 million / 1 = $25 million

Marginal cost of 2nd movie = ( $52 million - $26 million) / ( 2 - 1 ) = $26 million / 1 = $26 million

Number of Movies	Fixed Cost ( dollars in million)	Variable Cost ( dollars in million)	Total Cost ( dollars in million)	Marginal Cost ( dollars in million)
0	1	0	1	--
1	1	25	26	25
2	1	51	52	26
3	1	81	82	30