In 2017, Tesla Motors released the Model 3. The Model 3 is an all-wheel-drive, luxury sedan. It uses no gasoline and has a range of 220 to 310 miles per charge. Pre-orders for the Model 3 exceeded 450,000 units. To meet demand for the Model 3, Tesla announced it will increase production at its production facility to 6,000 cars per week, or about 300,000 cars per year. Currently, the plant is equipped to produce about 100,000 cars per year. Using the table:

a. Find Tesla’s average total cost of production across the various plants for each level of production.

b. Explain why the production costs with size A plant are higher than they would be if Tesla could build a new plant that was equipped to produce 300,000 vehicles.

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Total cost (billions of U.S. dollars) Plant 100,000 cars 200,000 cars 300,000 cars size sold sold sold A $1.75 $3.25 $5.50 B 2.00 3.00 5.00 C 2.50 4.00 4.50