Suppose That a Firm Can Produce Its Output at Either

question 36

Multiple Choice

Suppose that a firm can produce its output at either of two plants. If profits are maximized, which of the following statements is true?

• A) The marginal cost at the first plant must equal marginal revenue.
• B) The marginal cost at the second plant must equal marginal revenue.
• C) The marginal cost at the two plants must be equal.
• D) all of the above
• E) none of the above

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Definitions:

Common Fixed Expenses

Overhead costs that do not vary with the level of production or sales, shared by multiple business units or products.

Variable Costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in product costs.

Ending Inventory

The total value of all goods available for sale at the end of an accounting period, not yet sold.

Variable Production Costs

Costs that vary directly with the level of production, such as materials, labor, and utilities needed for manufacturing.