You own a cigar company in Cuba. You produce 999 boxes of cigars per year. Your...
You own a cigar company in Cuba. You produce 999 boxes of cigars per year. Your average cost per box is $1. Jean Chretien offers you $5 to produce an extra box so he can give it to his best friend. If you accept his offer your average cost per box will be $1.01. What should you do?
Homework Answers
Answer
total cost =average cost * quantity
Q=999 and ATC=1
TC=999*1=999
after the offer
TC=1000*1.01=1010
Jean Chretien offers you $5 to produce an extra box but Cuba will require $10 to produce an extra unit so the offer is not acceptable
You will not accept the offer as it will reduce profit by $5.
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