Claude's Copper Clappers Sells Clappers for $40 Each in a Competitive

question 408

Multiple Choice

Claude's Copper Clappers sells clappers for $40 each in a competitive price-taker market. At its present rate of output, Claude's marginal cost is $40, average variable cost is $45, and average total cost is $60. Claude should

• A) increase output
• B) reduce output but not to zero
• C) maintain the present rate of output
• D) shut down
• E) raise the price

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Definitions:

Contribution Margin

The amount by which sales revenue exceeds variable costs of production, indicating how much contributes to covering fixed costs and generating profit.

EBIT

A financial indicator, Earnings Before Interest and Taxes, reflects a company's earnings by removing the effects of interest and tax expenses.

Fixed Costs

Costs that do not change with the level of output or sales in the short term.

EPS

Earnings Per Share, a measure of a company's profitability, calculated as net income divided by the number of outstanding shares.