Your roommate's long hours in the chem lab finally paid off- she discovered a secret formula that lets people do an hour's worth of studying in 5 minutes. So far, she's sold 200 doses and faces the following average total cost schedule
Quantity Average total cost
199 doses $199
200 $200
201 $201
If a new customer offers pay your roommate
$300 for one dose, should she make one more. Explain.
Your figures indicate that it costs your roommate $1 to make 1 dose. It seems to be a no-brainer for her to make one more dose for a sale of $300. If she needs to make 200 doses for $200, she still reaps a great profit by selling one dose for $300.
To explain the decision-making process here, we need to understand the concept of average total cost. Average total cost (ATC) is the total cost of producing a certain quantity of goods divided by the quantity.
In this case, your roommate's average total cost for producing 200 doses is $200. This means that it costs her an average of $1 to make one dose (total cost divided by quantity).
Now, a new customer is offering to pay $300 for one dose. Since it only costs your roommate $1 to make one dose, she would be making a profit of $299 for each dose sold at this price ($300 - $1 = $299).
Considering the potential profit, it would be beneficial for your roommate to make one more dose and sell it at $300. Even if she needs to make 200 doses for $200, she is still earning a large profit by selling one dose for $300.
In summary, the decision to make one more dose and sell it for $300 is financially advantageous for your roommate based on the cost and profit analysis.