A new machine comes with 200 free service hours over the first year. Additional time costs $180 per hour. What are the average and marginal costs per hour for the following quantities? a) 125.
b) 225.
c) 325.

a) 0, 0

b) 180 per hour, 20per hour

c) 180 per hour , 69.2 per hour

Explanation:

We are to calculate the average and marginal costs per hour of the given value above

a) Given Number of hours is 125, but we are told that the new machine comes with 200 free service hours over the first year. Then MARGINAL COST= 0 because the service can be equal to 200hours and the given 125 hours is less than that.

then AVERAGE COST = ZERO

(b) we are Given 225 number of hours

Additional time costs is given as $180 per hour.

Then we have $180 per hour as MARGINAL COST.

Total cost can be calculated as

= [$180 × (225 - 200)]

=[ $180 ×25] = $4,500

Average cost can be calculated as

ratio of Total cost to Number of hours i.e $4,500/225

= 20per hour

C)we are Given 325 number of hours

Additional time costs is given as $180 per hour.

Then we have $180 per hour as MARGINAL COST.

Total cost can be calculated as

= [$180 × (235 - 200)]

=[ $180 ×125] = $22,500

Average cost can be calculated as

ratio of Total cost to Number of hours i.e $22,500/325

= 69.2per hour

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