A new machine comes with 200 free service hours over the first year. Additional time costs $150 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) $150 per hour; $16.67 per hour

(c) (b) $150 per hour; $53.57 per hour

Explanation:

(a) Number of hours = 125

Marginal cost = 0 (since service is cost less upto 200 hours)

Average cost = 0

(b) Number of hours = 225

Marginal cost = $150 per hour

Total cost = $150 * (225 - 200)

= $150 * 25

= $3,750

Average cost = Total cost : Number of hours

= $3,750 : 225

= $16.67 per hour

(c) Number of hours = 325

Marginal cost = $150 per hour

Total cost = $150 * (325 - 200)

= $150 * 125

= $18,750

Average cost = Total cost : Number of hours

= $18,750 : 325

= $53.57 per hour