A Firm Produces Three Products A, B, and C

question 2

Essay

A firm produces three products A, B, and C. Long-run projected sales per year are 10,000 units of A, 12,000 units of B, and 8,000 units of C.
(a) Determine whether the firm should remain in business under the following conditions:
Good A sells at $5 per unit, and average variable cost (AVC) is $3.5. Good B sells at $7.5 per unit, and AVC is $5. Good C sells at $10 per unit, and AVC is $7.50. Total fixed cost is $60,000 per year.
(b) If the firm allocates fixed cost using standard accounting practices, what is the total accounting profit for each good?

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Definitions:

Binding Contract

An agreement between two or more parties that is enforceable by law, where all parties have agreed to the terms through offer and acceptance.

Contractual Capacity

The legal ability of a person to enter into a binding contract.

Form a Contract

The process of creating a legally binding agreement between two or more parties.

Consideration

The benefit which is bargained for between the parties and is the essential reason for a party entering into a contract.