Use the following setup for question
A cloth manufacturing firm is deciding whether or not to invest in new machinery.The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000.The firm's current fixed costs are $9,000 and current marginal cost are $15.The firm currently charges $18 per unit.
-A catering company is producing at a point where its marginal costs are $25 and its fixed costs are $5000.At the current price of $10 it is producing 50 meals.If the demand goes up,such that they can now charge $20 per meal,how much should the firm now produce?
A)60 meals
B)70 meals
C)80 meals
D)None,they should shut down

Question

​Use the following setup for question
A cloth manufacturing firm is deciding whether or not to invest in new machinery.The machinery costs $45,000 and is expected to increase cash flows in the first year by $25,000 and in the second year by $30,000.The firm's current fixed costs are $9,000 and current marginal cost are $15.The firm currently charges $18 per unit.
-​A catering company is producing at a point where its marginal costs are $25 and its fixed costs are $5000.At the current price of $10 it is producing 50 meals.If the demand goes up,such that they can now charge $20 per meal,how much should the firm now produce?
A)​60 meals
B)70 meals
C)80 meals
D)​None,they should shut down

Quizplus · Accepted Answer

Given the information, the firm's marginal cost ($25) is higher than the new price ($20) per meal, indicating that the firm would lose money on each additional meal produced. Therefore, it would not be profitable for the firm to increase production; instead, it should consider shutting down or reassessing its cost structure.

​Use the Following Setup for Question

Use the Following Setup for Question