Each Unit of a Product Requires 5 Components

question 123

Multiple Choice

Each unit of a product requires 5 components.The average number of components is 5.50 due to component failure.Purchasing higher quality components can reduce the average number of components to 5 per unit.The cost per component is $450.Calculate the reduction in failure costs per unit due to purchasing higher quality components.

• A) $43
• B) $350
• C) $175
• D) $225
• E) $372

---

Definitions:

Optimal Capital/Labor Ratio

The most efficient mix of capital and labor that maximizes output or minimizes cost for producing a given level of output.

Production Function

An equation that describes the maximum output of a firm, given the quantity of inputs.

Variable Cost Function

A mathematical representation of the costs that vary with the level of output or activity, unlike fixed costs.

Marginal Cost Curve

A graphical representation that shows how the cost of producing one more unit of something changes as the quantity produced increases.