Cornish Company Had the Following Results of Operations for the Past

question 90

Multiple Choice

Cornish Company had the following results of operations for the past year: A foreign company (whose sales will not affect Cornish's market) offers to buy 3,000 units at $17.00 per unit.In addition to variable manufacturing costs,selling these units would increase fixed overhead by $500 and selling and administrative costs by $1,000.If Cornish accepts the offer,its profits will:

• A)Decrease by $4,500.
• B)Increase by $4,500.
• C)Decrease by $300.
• D)Increase by $13,500.
• E)Increase by $15,000.

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Definitions:

AVC

Stands for Average Variable Cost, which is the total variable cost per unit of output.

Short-Run Supply

The supply of goods that occurs when the sellers are only able to change some, but not all, conditions of production.

Diminishing Marginal Returns

A principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other inputs remain constant.

Perfectly Competitive

A perfectly competitive market is one where many buyers and sellers trade identical products so that each has no influence on the market price.