Cheshire Cat Company Sells One of Its Products for $100

question 11

Multiple Choice

Cheshire Cat Company sells one of its products for $100 each. Sales volume averages 750 units per year. Recently, its main competitor reduced the price of its product to $80. Cheshire Cat Company expects sales to drop dramatically unless it matches the competitor's price. In addition, the current profit per unit must be maintained. Information about the product (for production of 750) is as follows: The non-value-added cost per unit is

• A) $49.67.
• B) $48.33.
• C) $48.67.
• D) $51.67.

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Definitions:

Average Total Cost

The total cost of production divided by the quantity of output produced; encompasses both fixed and variable costs.

Long-run Equilibrium

A state where all the factors of production in an economy are being used in the most efficient way, leading to a situation where there is no tendency for change.

Perfectly Competitive Market

An economic model marked by a multitude of buyers and sellers, with no barriers to entering or leaving, and identical products.

Average Total Cost

The sum of average fixed costs and average variable costs, representing the total cost of production divided by the quantity of output.