(Marginal vs. average costs) You are the owner of a factory that supplies chairs and tables to schools in Denver. You sell each chair for $1.76 and each table for $4.40 based on the following calculation:

You have received a “take it or leave it” offer from a school in Colorado Springs to supply an additional 10,000 chairs and 2,000 tables for the price of $1.5 and $3.5, respectively. Your financial advisor advises you not to take up the offer because the price does not even cover the cost of production. You have pointed out to the advisor that the fixed costs (row 6) will not increase with additional chair production. You also claim that the existing labor force can make the additional furniture. Redo the calculations to see if you should accept the Colorado Springs offer.

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A B D 1 2 FURNITURES FACTORY Chair department Table department 3 No. of units 100,000 20,000 4 Cost of material 80,000 35,000 5 Cost of labor 40,000 20,000 6 Fixed cost 40,000 25,000 7 Total cost 160,000 8 Cost per unit 1.6 80,000