Werner & Sons Is a Manufacturer of Three-Ring Binders Operating

question 38

Essay

Werner & Sons is a manufacturer of three-ring binders operating in a perfectly competitive industry.Table 7-4 shows the firm's cost schedule.
Table 7-4
Use the table to answer the following questions.
a.Complete Table 7-4 by filling in the blank cells.
b.Werner is selling in a perfectly competitive market at a price of $40.What is the profit-maximising or loss-minimising output?
c.Calculate the firm's profit or loss.
d.Should the firm continue to produce in the short run? Explain.
e.If the firm's fixed costs were $30 higher,what would be the profit-maximising output level in the short run? Indicate whether the output level will increase,decrease or remain unchanged compared to your answer in b.
f.Suppose fixed cost remains at $76.If the price of three-ring binders falls to $20 what is the profit-maximising or loss-minimising output?
g.Calculate the profit or loss.Should the firm continue to produce in the short run? Explain your answer.
h.Suppose the fixed cost remains at $76.What price corresponds to the shutdown point?
i.Suppose the fixed cost remains at $76.What price corresponds to the break-even point?

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Definitions:

Estimated Returns Inventory

Inventory that accounts for goods that are expected to be returned by customers, impacting the valuation of total inventory and cost of goods sold.

Multiple-Step Income Statement

This financial statement format separates operating from non-operating activities, providing a detailed breakdown of revenues, expenses, and net income.

Income from Operations

The profit generated from a company's regular business operations, excluding any extraordinary items.

Estimated Returns Inventory

Inventory that is reserved or set aside by a company, based on historical data, to account for future product returns from customers.