Question

Suppose the fixed cost for a product is $500 and the break-even quantity is 100 units. Find the marginal profit (the slope of the linear profit function):

a) $500
b) $5
c) $0
d) $100

Answer 1

The company will experience losses of $5 when five units are produced and sold at $25 per unit. Price being less than average cost indicates a loss of $1 per unit. The marginal unit is subtracting from profits.

Step-by-step explanation:

The company will experience losses (or negative profits) of $5 when five units are produced and sold at a price of $25 per unit. If the price is less than the average cost, the company is not making a profit. In this case, the average cost is $26 per unit, and the price is $25 per unit, resulting in a loss of $1 per unit produced. The marginal cost of producing five units is $30 per unit, while the price is $25 per unit, indicating that the marginal unit is subtracting from profits.