Question

Refer to the above Situation: Acme has discovered, following the design of the first units of the product that the actual Expected Cost is

$43
$43 per unit, higher than they expected, The Vice-Pre.
a. True
b. False

Answer 1

The WipeOut Ski Company experiences a loss of $5 when producing and selling five units at $25 each, due to average costs being higher than the selling price and marginal costs exceeding the price for the additional unit.

Step-by-step explanation:

The student's question pertains to the calculation of a firm's profits or losses and considerations regarding average cost and marginal cost.

For the WipeOut Ski Company, we learn that the company is producing five units at $25 per unit. Consequently, the total revenues are $125 (5 units x $25/unit). However, the total costs of production come out to $130. This ultimately leads to a loss of $5 ($125 - $130).

At a price of $25 per unit, with an average cost of $26 per unit, the firm is not profitable because the selling price is not covering the average cost, generating a loss of $1 per unit and a total of $5 for five units. Moreover, since the marginal cost of producing a fifth unit is $30, which is greater than the selling price, the marginal unit produced is reducing overall profits, indicating the company should produce fewer units.