Suppose You Are Deciding Whether or Not to Increase Production

question 139

Multiple Choice

Suppose you are deciding whether or not to increase production. You are currently making a profit. If you produce one more unit your increase in cost will be $10, your average variable costs will increase to less than that and your average fixed costs will decrease. Finally, your average revenue will increase to $10, but your increase in revenue will be $9. You should

• A)Increase production by at least 1 unit.
• B)Increase production by exactly 1 unit.
• C)Leave production unchanged, profit is maximized where you are.
• D)Redo the math associated with decreasing production because that may result in greater profit.

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Definitions:

Productive Capacity

The maximum output a system can produce over a specific period under normal conditions.

Income Taxes Payable

The amount of income taxes a company owes to the government that has not yet been paid.

Operating Activities

Transactions and events that affect the net income of a company, involving its primary operations.

Free Cash Flow

The amount of cash generated by a company after accounting for capital expenditures, essential for growth and expansion.