Behind the Supply Curve End of Chapter Problem

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

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.

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

Plant size	ATC (100,000)	ATC (200,000)	ATC (300,000)
A
B
C

b. Production costs with a size A plant are higher than they would be if Tesla could build a new plant that was equipped to produce 300,000 vehicles. This is because with

equipment, workers will be

productive,

costs for any given level of output.