A Firm Has Excess Capacity, and Has Received an Order

question 106

Multiple Choice

A firm has excess capacity, and has received an order for 50 000 units at $20 each over and above its normal production activity of 600 000 units. To meet this order, new equipment at a cost of $200 000 would have to be bought, and this equipment would have to be scrapped after the order had been filled. The firm currently sells for $50 per unit, has variable costs of $15.80, and fixed costs of $600 000. Assuming the firm had been aggressively seeking the business of the customer who requested the special order, what would be the minimum price that the firm would be prepared to charge?

• A) $15.80
• B) $50
• C) $27.80
• D) $19.80

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Definitions:

Punishment

A process in which a response is followed by a stimulus that decreases the likelihood of that response being repeated.

Undesirable Behaviours

Actions or reactions that are not wanted or are considered negative by society, a group, or an individual.

Strengthens

To increase in power, magnitude, or effectiveness.

Punishment

The imposition of a penalty as a consequence of an undesirable action, aimed at reducing that behavior.