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# Question 6. (20 points) The licorice industry is competitive.

The current market price of a string of licorice is \$0.50.  At this price, a firm decides to produce 2 million strings of licorice this month. The total fixed cost per month is \$400,000 and the average variable cost of \$0.40

1. What is the marginal cost of a string at 2 million strings of production level?

Marginal cost is the ∆TC(total cost)/ ∆Q (quantity)

VC (variable cost)= AVC x Q = \$0.40 x 2,000,000 = \$800,000

Total Cost (TC) = Fixed Cost (FC) + VC = \$400,000 + \$800,000 = \$1,200,000

ATC = TC / Q = \$1,200,000 / 2,000,000 = \$0.60

MC = DTC / DQ = (\$1,200,000 - \$400,000) / (2,000,000 - 0) = \$0.40

I have a marginal cost of .\$40 which is equal to the average variable cost, I think I made a mistake somewhere and I cant catch where.

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