Practice Questions
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If a product has a selling price of $150 and variable costs of $90, what is its contribution margin?
Contribution margin is the amount left after covering variable costs. Other options are incorrect because The variable cost itself is not the contribu...
A company has fixed costs of $20,000 and sells a product for $200 per unit, with variable costs of $120 per unit. If the price elasticity of demand for this product is -1.5, what is the minimum number of units the company must sell to break even, assuming a 10% increase in price due to the elasticity factor?
The price rises by 10%, so the new selling price is $220. Other options are incorrect because It assumes the elasticity factor has no effect, so it on...
A company increases the price of its product from $50 to $60, resulting in a price elasticity of demand of -2. If the company's fixed costs are $10,000 and the variable cost per unit is $30, how many units must they sell to break even after the price increase?
The contribution margin is the selling price minus the variable cost, so $60 minus $30 equals $30. Other options are incorrect because Selling only 20...
A manufacturing company produces a gadget with a fixed cost of $15,000. The variable cost per unit is $50, and each gadget sells for $100. If the company decides to increase production by 100 units, what will be the impact on their marginal cost, and what is the new breakeven point in units?
The marginal cost is the extra cost of making one more unit. Other options are incorrect because People think producing more makes each unit cost more...
If a production company discovers that the marginal cost of producing an additional unit is lower than the selling price, what does this indicate about their current production level?
The price of each extra unit is higher than the extra cost to make it, so each new unit brings more profit. Other options are incorrect because A lowe...
Marginal Product of Labor : Wage :: Marginal Product of Capital : ?
When a firm adds one more worker, it looks at how much extra output comes from that worker and compares it to the worker's pay. Other options are inco...
A firm's profits have significantly decreased despite an increase in production levels. What could be the underlying reason for this decline in profits?
When the cost of making one more unit (marginal cost) becomes higher than the extra money earned from selling that unit (marginal revenue), the firm l...
To achieve profit maximization, a firm should adjust its resource allocation until the _______ of labor divided by the wage is equal to the _______ of capital divided by the price of capital.
The firm wants each dollar spent on labor to add the same amount of output as each dollar spent on capital. Other options are incorrect because Total ...
A firm is considering hiring an additional worker. If the marginal product of labor is 30 and the wage is 10, while the marginal product of capital is 25 and the price of capital is 12, should the firm hire the additional worker?
The firm hires when the extra output from one more worker, 30 units, is worth more than the worker’s cost, 10 dollars. Other options are incorrect bec...
Which scenario best illustrates the principle of profit maximization for a firm?
The firm stops buying more capital when the extra output from one more unit equals its price. Other options are incorrect because Hiring workers beyon...
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