Asked by Christi Chapman on Sep 23, 2024
Verified
A firm's sunk costs are $100,000 and its marginal costs are $250 per unit.It produces 500,000 units and prices it at $400 per unit. ,How low can price go before the firm decides to shut down?
A) $150
B) $250
C) $250.20
D) $400
Marginal Costs
The additional cost incurred in producing one more unit of a product or service.
Sunk Costs
Costs that have already been incurred and cannot be recovered, which should not influence future business decisions.
Shut Down
The process of ceasing operations or activity, either temporarily or permanently.
- Comprehend decision-making processes in the short-run and long-run for operational and investment objectives.
- Implement the principles of marginal and average costs to ascertain production volumes and financial gain.
Verified Answer
KB
Kensley Baugh2 days ago
Final Answer :
B
Explanation :
The firm will decide to shut down if the price falls below its marginal costs, which are $250 per unit. At any price below this, the firm would not cover the cost of producing an additional unit, leading to losses on each unit produced.
Learning Objectives
- Comprehend decision-making processes in the short-run and long-run for operational and investment objectives.
- Implement the principles of marginal and average costs to ascertain production volumes and financial gain.