Provide the rationale for the authors recommendation

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Reference no: EM131244433

According to a news agency article, a particular model of car (Sundra) costs $65,000 to produce, while its market price is $34,000. As a result, the author of the article concluded that the automobile company would be losing $31,000 on each Sundra it builds and recommended that the automobile company should not be producing more Sundras. A breakdown of the $65,000 figure was provided as follows:

1. Incurred development costs of about $4.5 billion spread out over the 100,000 cars produced to date, for an average of $45,000 per car; and

2. Cost of building an additional car: $20,000.

Provide the rationale for the author's recommendation that the automobile company should not be producing more Sundras. (Hint: Define, identify and use the concept of average total cost)

Reference no: EM131244433

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