Ace Computers (AC)is a Manufacturer

question 20

Multiple Choice

Ace Computers (AC) is a manufacturer.It entered into a contract with a retailer,Reliable Computer (RC) for the sale of 100 new XYZ model computers at $1,000 each,for delivery in six months.AC would thus make a profit of $50,000.Six months later however,the XYZ model has become almost obsolete;its market price is only $100 at that time.RC refuses to accept or pay for those computers.If AC sues,how much should it be entitled to in damages? (Ignore any incidental expenses or cost savings to AC. )

• A)Nothing;when the XYZ model became almost obsolete,this excused RC from the contract.
• B)$50,000,the profit AC would have made had RC not breached the contract.
• C)$90,000,the difference between market price and contract price.
• D)$140,000,the lost profit plus the difference between market price and contract price.

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Definitions:

Profit-Maximizing Level

The point at which a firm produces at a level where the difference between total revenue and total cost is the greatest.

Marginal Revenue

The additional income earned by selling one more unit of a good or service.

Normal Good

A product or service whose demand increases as consumers' income increases, typically reflecting higher purchasing power.

Profit-Maximizing

The strategy by which an organization sets the price and amount of output to achieve the maximum profitability.