Question
What is the maximum marginal cost that your company should pay on producing additional detergents?
your company must pay $2 million each year for environmental liability insurance. It must also pay $1 million per year in rent for the building in which the factory operates. This year, after paying both costs, your marketing department comes to you with the following information: “Boss, if we simply sell the quantity of detergents currently stored in our warehouses, without producing new ones, our sales will be $9 million. But if we produce and sell additional detergents our total sales will increase to $15 million. We have estimated that it will cost the company $8 million more to hire the workers needed to produce the additional detergents.”
your company must pay $2 million each year for environmental liability insurance. It must also pay $1 million per year in rent for the building in which the factory operates. This year, after paying both costs, your marketing department comes to you with the following information: “Boss, if we simply sell the quantity of detergents currently stored in our warehouses, without producing new ones, our sales will be $9 million. But if we produce and sell additional detergents our total sales will increase to $15 million. We have estimated that it will cost the company $8 million more to hire the workers needed to produce the additional detergents.”
Answers
Bot
Given the information provided, the maximum marginal cost that your company should pay on producing additional detergents is $8 million. This is the cost of hiring the workers needed to produce the additional detergents.