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Question

# The cost $C$, in millions of dollars, of producing $q$ items is given by $C=5.7+0.002q$ .Interpret the 5.7 and the 0.002 in terms of production. Give units.

Solution

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For the given formula $C=5.7+0.002q$ where the cost $C$ is measured in millions of dollars, the vertical intercept is $5.7$.This means that the $\textbf{fixed cost}$ of production is $5.7$ millions of dollars.

The slope of the cost function is $0.002$.This means that the $\textbf{variable cost}$ is $0.002$ million dollars per unit(or $0.002\cdot 1,000,000=\2,000$ per unit).

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