Final answer:
The WipeOut Ski Company experiences a loss of $5 when selling 5 units at a price of $25 each because the total costs of $130 exceed total revenues of $125. By comparing the unit price to the average cost per unit, we can tell the company is losing money since the average cost ($26) is higher than the price ($25). To determine if the marginal unit adds to profits, we would need further data on variable costs.
Step-by-step explanation:
The question initially given, which asks for the number of units ABC COMPANY needs to sell to earn an after-tax net income of $18,000, does not provide enough information for a detailed response. However, by examining a separate example of the WipeOut Ski Company, we can understand how to approach profit analysis.
In the WipeOut Ski Company scenario, where the firm produces and sells 5 units at a price of $25 each, we calculate the company's profits or losses by subtracting the total costs from the total revenues, both of which can be obtained directly from the provided data. Therefore, the total revenues would be 5 units × $25/unit = $125, and given the total costs are $130, the company would have a loss of $130 - $125 = $5.
To determine at a glance whether the company is making or losing money at this price by looking at the average cost, you can compare the unit price of $25 to the average cost per unit. In this case, average cost per unit is $130 divided by 5 units, which equals $26. If the average cost per unit is greater than the price per unit, the company is losing money, which we can see here ($26 > $25).
As for whether the marginal unit is contributing to profits, we would need additional information on the variable costs per unit and the costs associated with producing one more unit to make that determination. However, generally, if the price per unit exceeds the marginal cost of producing one more unit, then the marginal unit is adding to profits.