$8
C. have the firm produce the quantity at which marginal revenue equals marginal cost. D. set price equal to marginal cost, even if marginal cost is less than average total cost. 13. Suppose a monopoly firm has a constant marginal cost equal to $8. Marginal costs are variable costs consisting of labor and material costs, plus an estimated portion of fixed costs (such as administration overheads and selling expenses). In companies where average costs are fairly constant, marginal cost is usually equal to average cost. However, in industries that require heavy capital investment (automobile plants, airlines, mines) and have high average costs, it is comparatively very low. When factory employees are paid per unit produced, their wages can be included in constant marginal cost. Constant marginal cost is the total amount of cost it takes a business to produce a single unit of production, if that cost never changes. Since the cost is the same for every single unit produced, it is considered a constant. Marginal cost and average cost can differ greatly. For example, suppose it costs $1000 to produce 100 units and $1020 to produce 101 units. The average cost per unit is $10, but the marginal cost of the 101st unit is $20. When estimating costs for production, the constant marginal cost is often part of a linear cost function. Total costs will be equal to fixed costs added to variable costs, which, as mentioned above, is dependent on the marginal cost. The marginal cost of producing the second Stuffed Amigo is calculated in the same way. Total cost changes from $8 to $11 and total variable cost changes from $5 to $8, both generating a marginal cost of $3.
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constant marginal cost