Suppose That at the Current Level of Output, Pat's Hats

question 71

Multiple Choice

Suppose that at the current level of output, Pat's Hats has fixed costs of $500, variable costs of $1, 000, and $2, 000 in total revenue.Which of the following is true?

• A)Profit is currently $500 and, in the long run, it will be $1, 000 because there will be no fixed costs.
• B)Profit is currently $500 and, in the long run, it will be $1, 500 because there will be no variable costs.
• C)Profit is currently $500.
• D)Profit is currently $500, and Pat's Hats will want to decrease its plant size in the long run to lower its fixed costs.
• E)Pat's Hats will continue to operate as long as revenue is greater than $500.

Identify and distinguish between various types of costs such as sunk costs, period costs, product costs, and opportunity costs.

Calculate total costs, including both variable and fixed components, at different levels of production or sales volume.

Understand how costs behave within the relevant range and how to apply this understanding to cost management.

Assess the impact of different cost structures on financial reporting for a business.

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Definitions:

Domestic Export Sector

The part of a country's economy that is focused on producing goods and services for exportation to other countries.

Production Possibilities Curves

The production possibilities curve illustrates the maximum potential output combinations of two goods or services that an economy can achieve when all resources are fully and efficiently utilized.

Trading Possibilities Curves

A graphical representation that shows the maximum amounts of goods that two countries can trade with each other, given their resources and technology.

Comparative Advantage

The skill of an entity—be it an individual, enterprise, or nation—to manufacture a product or deliver a service at a reduced opportunity cost than that of its competitors.