A Company Produces at an Output Level Where Marginal Cost

question 53

Multiple Choice

A company produces at an output level where marginal cost is equal to marginal revenue and has the following revenue and cost levels:
Total revenue = $1,450
Total cost = $1,500
Total variable cost = $1,300
What would you suggest?

• A) shut down
• B) continue to produce because the loss is less than the total fixed cost
• C) increase production to lower the marginal cost
• D) reduce output to lower the marginal cost
• E) raise the price

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Definitions:

Joint Costs

The costs that are incurred from producing two or more products in the same process.

Split-Off

A point in the manufacturing process where joint products are separated and continue through the production process as distinct items.

Sales Margin

The difference between the selling price of a product and its cost of sales, usually represented as a percentage of sales.

Changing Technology

The rapid evolution and adoption of new techniques, tools, and software which can disrupt industries and alter business operations.