Suppose That at the Current Level of Output, Pat's Hats

question 71

Multiple Choice

Suppose that at the current level of output, Pat's Hats has fixed costs of $500, variable costs of $1, 000, and $2, 000 in total revenue.Which of the following is true?

• A)Profit is currently $500 and, in the long run, it will be $1, 000 because there will be no fixed costs.
• B)Profit is currently $500 and, in the long run, it will be $1, 500 because there will be no variable costs.
• C)Profit is currently $500.
• D)Profit is currently $500, and Pat's Hats will want to decrease its plant size in the long run to lower its fixed costs.
• E)Pat's Hats will continue to operate as long as revenue is greater than $500.

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Definitions:

Cash Payments

Outflows of cash from a company to settle debts, purchase goods or services, or make investments.

Cash Account

An account recording the amounts of cash received and paid out in transactions.

Credit

A financial term denoting the provision of money, goods, or services with the expectation of future payment.

Consuming Goods

The action of using up goods or products, thereby reducing inventory.