Author Question: A firm's sunk costs are 100,000 and its marginal costs are 250 per unit. It produces 500,000 units ... (Read 103 times)

Zulu123 · **on:** Jul 1, 2018

A firm's sunk costs are 100,000 and its marginal costs are 250 per unit. It produces 500,000 units and prices it at 400 per unit., How low can price go before the firm decides to shut down?
a. 150
b. 250
c. 250.20
d. 400

Question 2

Dremel Tools Dremel sells a high speed rotary tool appropriate for many workshop projects. They have developed hundreds of accessories and bits for their tools for many different applications. Why is the markup on the accessories higher than the markup on the rotary tools?

owenfalvey · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

b

Answer to Question 2

Dremel is engaging in a form of metering. Purchasers differ in their willingness to pay for the continued use of the system. Those who value it a lot will purchase many different accessories. Those who have lower willingness to pay are going only get the more basic bits. So, a higher margin for the accessories allows Dremel to extract more of the surplus from the high types without losing the low types.