A profit maximizing firm asks you to advise them in coming to a decision on a re
ID: 1095581 • Letter: A
Question
A profit maximizing firm asks you to advise them in coming to a decision on a recent offer they have received. They tell you the following information about current costs of production:
Quantity ATC
500 $200
501 $201
The current level of production is 500 units. All 500 units have been ordered by your regular customers, but a new customer has just called requesting to buy 1 unit of your product. This means you would have to increase production to 501 units. The new customer offers the firm $450 to produce the extra unit.
a. Should they except this offer? Explain in detail so i can learn the process of thinking.
b. What is the net change( the change that occurs as a result of excepting this offer) inthe firms profit?
PLEASE show all steps along with an explanation so i can understand how to do this i am determined however do not get micro very well..Thank you for your time and consideration.
Explanation / Answer
total cost for 501 products
= 201 * 501
=100701
total cost for 500 products
= 200 * 500
= 100000
cost for the extra product
= 100701 - 100000
= 701
so , shouldnot accept the offer since the cost incurred for the extra product
is greater than the price offered for the product
net change = 450-701 = -251
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