Suppose That in Horsehead, Massachusetts, the Cost of Operating a Lobster

question 6

Multiple Choice

Suppose that in Horsehead, Massachusetts, the cost of operating a lobster boat is $5,000 per month. Suppose that if x lobster boats operate in the bay, the total monthly revenue from lobster boats in the bay is $1,000(21x - x²) . If there are no restrictions on entry and new boats come into the bay until there is no profit to be made by a new entrant, then the number of boats who enter will be X₁. If the number of boats that operate in the bay is regulated to maximize total profits, the number of boats in the bay will be X₂.

• A) X₁ = 16 and X₂ = 16.
• B) X₁ = 20 and X₂ = 12.
• C) X₁ = 16 and X₂ = 8.
• D) X₁ = 8 and X₂ = 6.
• E) None of the above.

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Definitions:

Variable Costing

A method of cost accounting where only variable production costs are included in product costs, with fixed overhead expenses treated as period costs.

Unit Product Cost

The total cost associated with producing a single unit of a product, calculated by dividing the total production costs by the number of units produced.

Variable Costing

A technique in management accounting that only considers variable production costs as product costs, with fixed costs treated as period costs.

Finished Goods Inventory

The stock of completed products that are ready for sale but have not yet been sold to customers.