A firm that sells headphones has the following average total cost schedule:The company currently produces and sells 600 units. A desperate customer calls and offers \$550 for a pair of headphones. Should the company accept the offer?

• A. Yes, because the offer is above average total cost
• B. No, because the offer is above average total cost
• C. Yes, because the offer is above marginal cost
• D. No, because the offer is below marginal cost

Answer: (D)

Verified step by step guidance

1. Identify the key information from the problem: the firm currently produces and sells 600 units, and a customer offers \$550 for an additional unit.
2. Understand the concept of marginal cost: it is the cost of producing one more unit of a good. In this case, it is the cost of producing the 601st headphone.
3. Calculate the marginal cost using the average total cost (ATC) data provided. The marginal cost (MC) can be found by the change in total cost when one more unit is produced. Use the formula: MC = (Total Cost at 601 units - Total Cost at 600 units).
4. Calculate the total cost for 600 units and 601 units using the ATC: Total Cost at 600 units = 600 * \$300, Total Cost at 601 units = 601 * \$301.
5. Determine if the offer price of \$550 is above or below the marginal cost calculated. If the offer is below the marginal cost, the firm should not accept the offer, as it would result in a loss for the additional unit produced.