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 thefollowing 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.

Question

Quizplus · Accepted Answer

Current profit can be calculated as revenue minus total costs, which is $500 in this case. None of the other options are true. Option A is incorrect because fixed costs will still exist in the long run. Option B is incorrect because variable costs will still exist in the long run. Option D is incorrect because Pat's Hats may have other reasons to want to increase or decrease its plant size, but this information is not given in the question. Option E is incorrect because as long as revenue covers all costs, the business can continue to operate in the short run, but in the long run, it must cover all its costs including fixed costs to be sustainable.

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