The Average Cost of Production at the Profit Maximizing Output

question 13

Multiple Choice

The average cost of production at the profit maximizing output level for Jones Inc., is $4 per unit.The average variable cost of production is $3.5 per unit at this output level.The introduction of cheaper substitutes reduces the demand drastically and the market price falls to $1.5 per unit.If the minimum average variable cost the firm must incur is $2.5, identify the correct statement from the following.

• A)There are output levels where revenue exceeds variable cost when the price is $1.5 per unit.
• B)The firm will continue to operate in the short run.
• C)The firm will breakeven at the price of $1.5 per unit.
• D)The firm will shut down.

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Definitions:

Section 179

A tax code provision allowing businesses to deduct the full purchase price of qualifying equipment or software within the tax year.

Schedule C

A tax form used by sole proprietors to report profits or losses from a business.

Sole Proprietor

An individual who owns and operates a business alone, bearing sole responsibility for its debts and liabilities.

Education Expenses

Costs associated with schooling or training, including tuition, books, and supplies, that may be eligible for tax deductions or credits.