A Firm Has Been Making Relatively Large Profits Lately and Has

question 102

Essay

A firm has been making relatively large profits lately and has an extra $20,000 to invest. The firm is choosing among three investment options: improving the training of store employees, buying new computer equipment, or saving the $20,000 in a bank account and using it at a later date. How should the firm decide which option to choose? Which option is least risky? Most risky?

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Definitions:

Average Variable Cost

The per unit cost of variable inputs (like labor and raw materials) that change with the level of output.

Marginal Cost

The additional cost incurred by producing one more unit of a product or service, which typically varies with the level of production.

Total Costs

The sum of fixed and variable costs incurred by a business in the production of a good or service.

Average Total Cost

The total cost per unit of output, calculated by dividing total costs by the number of units produced.