Season 3, Episode 11: “Wine Balloon,” owned by Eric Corti, produces a wine-preserving product. The product currently sells for $22 and costs $6.50/unit when production is at 700 units. The sharks advise that the potential to cut costs are huge and hence increase revenue. If he produces 100,000 production cost per unit will fall to $2.50. That would be a $4/unit savings!

Question 4 A: This nicely illustrates economies of scale. Do you agree? What do you mean by economies of scale?

Question 4 B: Calculate total costs using the average cost formula for both low and high production levels.