Scenario 1-3 Suppose a T-Shirt Manufacturer Currently Sells 5,000 T-Shirts Per Week

question 431

Multiple Choice

Scenario 1-3
Suppose a t-shirt manufacturer currently sells 5,000 t-shirts per week and makes a profit of $10,000 per week. A manager at the plant observes, "Although the last 400 t-shirts we produced and sold increased our revenue by $4,000 and our costs by $4,800, we are still making an overall profit of $10,000 per week so I think we're on the right track. We are producing the optimal number of t-shirts."

-Refer to Scenario 1-3. Using marginal analysis terminology, what is another economic term for the incremental cost of producing the last 400 t-shirts?

• A) marginal cost
• B) operating cost
• C) explicit cost
• D) Any of the above terms are correct.

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Definitions:

IRR

An investment's IRR represents the discount rate that makes the sum of all future cash flows (positive and negative) from the investment equal to zero, effectively measuring its annual growth rate.

NPV

Net Present Value; the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Payback

The length of time it takes for an investment to generate an amount of money equal to the cost of the investment, used as a basic measure of the investment's risk.

Discounted Payback

The period of time it takes for an investment’s cash flows, discounted at a particular rate, to cover its initial cost.