Asked by Maddie Murch on Jul 22, 2024
Verified
A manager invests $400,000 in a technology that should reduce the overall costs of production.The company managed to reduce their cost per unit from $2 to $1.85.All else equal,if the firm continues its production in the same economic environment,the firm's economic profits should
A) increase if output is low enough
B) decrease
C) stay the same
D) increase if output is high enough
Economic Environment
The economic environment consists of all the external economic factors that influence buying habits, business operations, and growth prospects of entities.
Economic Profits
The discrepancy between total income and overall expenses, encompassing all direct and indirect costs.
Production Costs
The total expenses incurred in the manufacture of a product, including raw materials, labor, and overhead.
- Analyze the impact of investments on the reduction of production costs and its effect on economic profits.
Verified Answer
LS
lovepreet singhJul 26, 2024
Final Answer :
D
Explanation :
The reduction in cost per unit from $2 to $1.85, assuming all else remains equal, means the firm will save on production costs for each unit produced. Therefore, as the firm produces more units, these savings accumulate, leading to an increase in economic profits if the output is high enough to offset the initial $400,000 investment in technology.
Learning Objectives
- Analyze the impact of investments on the reduction of production costs and its effect on economic profits.