Question

To maximize profit, a company should:

1) not allocate overhead.
2) utilize process costing
3) emphasize its most profitable product.
4) utilize job costing.

Answer 1

To maximize profit, a company should emphasize its most profitable product. This involves analyzing costs such as total, fixed, variable, marginal, and average costs, and finding the optimal point where marginal revenue equals marginal cost.

Step-by-step explanation:

To maximize profit, a company should emphasize its most profitable product. This strategy aligns with understanding the relationship between production and costs, as well as the impact of various factors of production. It's essential to recognize that each factor of production has a corresponding price and this influences total, fixed, variable, marginal, and average costs, which are all critical for calculating average profit.

Analyzing these costs in the short-run helps a company make informed decisions about which products to focus on and at what quantity.Finding the balance where marginal revenue equals marginal cost is key to maximizing profits, as producing more beyond this point will not add to profits.

Firms often experiment with different production levels to observe the effects on profits since they typically lack the complete data needed for drawing a total cost curve for all production levels. These experiments enable firms to evaluate patterns of costs and determine potential profit, leading to more strategic decision-making aimed at profit maximization.