Average Cost

[jasonjason]

Which one is correct?

The following array shows the time and cost (minimum and maximum) in making one unit of item.
Calculate the average total cost.

	Time	Cost	Total Cost (Time * Cost)
Minimum	2	50	100
Maximum	6	80	480

Average Total Cost = ((2+6)/2*(50+80)/2) ----------(1)
= 260
First take average of maximum and minimum time and of maximum and minimum cost, then use the average time and average cost to arrive at average total cost.


Average Total Cost = (100+480) / 2 ​-----------(2)
= 290

First calculate the minimum total cost (minimum time multiplied by minimum cost) and the maximum total cost (maximum time multiplied by maximum cost), then use the two results to arrive at average total benefit

Question: Which of the above methods is the better estimate of the average total cost of making one item?
And why?

 

[DrPhil]

Which one is correct?

The following array shows the time and cost (minimum and maximum) in making one unit of item.
Calculate the average total cost.

	Time	Cost	Total Cost (Time * Cost)
Minimum	2	50	100
Maximum	6	80	480

Average Total Cost = ((2+6)/2*(50+80)/2) ----------(1)
= 260
First take average of maximum and minimum time and of maximum and minimum cost, then use the average time and average cost to arrive at average total cost.


Average Total Cost = (100+480) / 2 ​-----------(2)
= 290

First calculate the minimum total cost (minimum time multiplied by minimum cost) and the maximum total cost (maximum time multiplied by maximum cost), then use the two results to arrive at average total benefit

Question: Which of the above methods is the better estimate of the average total cost of making one item?
And why?

It is not a matter of which is correct, but rather which is more likely to be accurate; that is, which is the better estimate. One thing you should consider: are the differences of cost independent of the differences in time, or are the two effects correlated? Let us see your opinions!

 

[HallsofIvy]

Skyhawk, this is one of a number of posts you have made which really do not add anything. Do not feel that you have to contribute to every thread! But in this particular thread, you are wrong. The first method averages time and quantity separately while the problem asks you to average total cost.