The problem involves the calculation of profits by subtracting total costs from total revenue for 5 units sold at $25 each, with an additional note of $40 profits. To evaluate profitability, compare the average cost per unit to the selling price. Lastly, a marginal unit adds to profits if its revenue exceeds the marginal cost.
The problem regarding the Wipe Out Ski Company asks for an analysis of profits and decision-making based on the production and sale of 5 units for $25 each. To calculate the company's profits or losses, we subtract the total costs from the total revenue. The total revenue would be 5 units sold at $25 each, giving us $125. Without knowledge of the total costs, we cannot determine profits or losses; however, the additional information provided indicates a profit of $40.
To determine at a glance if the company is making or losing money, we would look at the average cost compared to the price per unit. If the average cost per unit is less than the selling price per unit ($25), the company is making a profit on each unit sold. Conversely, if the average cost per unit is higher, the company would be incurring losses.
Whether the marginal unit produced adds to profits depends on whether the revenue from selling that additional unit exceeds the marginal cost of producing it. If the revenue, in this case, $25, is greater than the marginal cost, then it contributes positively to profit. If the marginal cost is higher than $25, the firm is losing money on that unit.
The probable question may be:
William is selling sweaters, and the profit he makes from each sweater follows a specific pattern: $350, $300, $250, $200, $150, $100, $50. If the pattern continues, how many sweaters must William sell to achieve a profit of $350?
A) 9
B) 10
C) 11
D) 12