Question
ABC Company is a producer of electronic furnace air filters. A significant jump in new housing starts in the region has triggered a 25 percent
ABC Company is a producer of electronic furnace air filters. A significant jump in new housing starts in the region has triggered a 25 percent increase in orders for the filter units, especially the quality model that ABC sells for $270. Six weeks after increasing production to supply the increased orders, the production intern questions you about the following cost data:
Filter | This Month | Last Month | Change |
Average total cost per unit | $167.20 | $171.14 | -$3.96 |
Cost of last unit produced (i.e., marginal cost) | $104.90 | $101.22 | +$3.68 |
In the simplest terms possible and using what you have learned about cost behavior, provide a plausible explanation of how this might occur.
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