Micro Enterprises Has the Capacity to Produce 10,000 Widgets

question 10

Multiple Choice

Micro Enterprises has the capacity to produce 10,000 widgets a month,and currently makes and sells 9,000 widgets a month.Widgets normally sell for $6 each,and cost an average of $5 to make,including fixed costs.The monthly fixed costs are $18,000.Coyote Corp.has offered to buy 1,000 widgets at $4 each. On this information alone,should Micro accept the offer?

• A)No,because it will lose $1 per unit
• B)No,because it will lose $2 per unit
• C)No,because it will exceed capacity
• D)Yes,because it makes $1 per unit in the short run
• E)Unable to determine

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Definitions:

Implicit Cost

The opportunity costs that are not directly paid or incurred but represent the loss of alternative benefits when resources are used in a particular way.

Capital

A resource, such as equipment or buildings, used to produce goods and services.

Implicit Costs

The opportunity costs that are not directly paid for or visibly incurred in financial transactions but represent real costs to economic actors.

Economic Costs

Economic costs include both the explicit costs of production, such as raw materials and wages, and implicit costs, such as opportunity costs.