Sharp Corporation Produces 8,000 Parts Each Year, Which Are Used

question 92

Multiple Choice

Sharp Corporation produces 8,000 parts each year, which are used in the production of one of its products.The unit product cost of a part is $36, computed as follows: The parts can be purchased from an outside supplier for only $28 each.The space in which the parts are now produced would be idle and fixed production costs would be reduced by one-fourth.Based on these data, the financial advantage (disadvantage) of purchasing the parts from the outside supplier would be:

• A)$24,000
• B)($24,000)
• C)$56,000
• D)($56,000)

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Definitions:

Profit-Maximizing Output

The point of production where a company reaches its maximum profit potential.

Short Run

A period in which at least one input (e.g., capital) is fixed, limiting the capacity for output adjustment.

Long-Run Cost Function

An economic model that describes how production costs change over time as all inputs can be varied by the producer.

Marginal Cost Function

A mathematical relationship describing how the cost of producing one additional unit of output varies as production scale changes.