Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The marginal cost remains the same, and the new breakeven point is 300 units.
B
The marginal cost increases, and the new breakeven point is 250 units.
C
The marginal cost decreases, and the new breakeven point is 200 units.
D
The marginal cost remains the same, and the new breakeven point is 400 units.
Understanding the Answer
Let's break down why this is correct
Answer
The marginal cost is the extra cost of making one more gadget, which is just the variable cost per unit, so it stays at $50 even if the company makes 100 more units. Because the marginal cost doesn’t change, the breakeven formula is unchanged: breakeven units = fixed cost ÷ (price – variable cost). Plugging in the numbers gives 15,000 ÷ (100 – 50) = 300 units. Thus, after adding 100 units, the marginal cost remains $50 and the breakeven point stays at 300 gadgets. For example, if the company now produces 400 gadgets, it still needs to sell 300 to cover all costs.
Detailed Explanation
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; Some assume more production reduces the marginal cost because of economies of scale.
Key Concepts
Marginal Cost Analysis
Cost-Volume-Profit (CVP) Relationship
Topic
Profit Maximization
Difficulty
medium level question
Cognitive Level
understand
Practice Similar Questions
Test your understanding with related questions
1
Question 1A company is evaluating whether to increase production of its product. If the marginal cost of producing one additional unit is $20 and the current market price is $50, what impact would this decision have on producer surplus, assuming the company can sell all additional units produced? Use cost-benefit analysis principles to support your conclusion.
hardEconomics
Practice
2
Question 2A 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?
hardEconomics
Practice
3
Question 3A 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?
mediumEconomics
Practice
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