Micro Enterprises Has the Capacity to Produce 10,000 Widgets

question 7

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 has offered to buy 1,500 widgets (all or nothing) for $4 each. The accountant has determined that the excess production (beyond capacity) can be accommodated in the short term by incurring an incremental (fixed) cost of $800.
Should Coyote's offer be accepted?

• A)No,because it will lose $1 per unit
• B)No,because the opportunity costs are less than the gains
• C)Yes,because the contribution from the sale exceeds the incremental costs
• D)Yes,because it makes $1 per unit in the short run
• E)Unable to determine

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Definitions:

Loggers

Workers or businesses engaged in cutting down trees and transporting the logs to sawmills.

Harvest Timber

The process of cutting down trees for the purpose of using their wood for construction, paper production, or other applications.

Sustainable Rate

The rate of growth or usage that can be maintained without depleting resources or causing severe ecological damage.

Forests

Large areas covered predominantly with trees and underbrush, playing crucial roles in biodiversity, climate regulation, and providing resources like timber and medicinal plants.