Question

homer's holesome donuts has determined that its profit-maximizing quantity is 10,000 donuts per year. homer's earns $12,000 in revenue from the sale of those donuts. homer's has two costs. first he pays $16,000 in annual rental payments for its five-year lease on its store. second homer incurs an additional cost of $5,000 for ingredients. should homer's exit the market in the long run?

Answer 1

Yes, considering that Homer's is losing money.

Is there a financial loss?

The company suffers an economic loss equal to the sum of its total fixed costs, variable costs, and revenue minus its total output. The company's economic loss is less than its total fixed cost if total revenue exceeds total variable costs. As a result, despite the company losing money, it pays for production.

Profit maximizing quantity is when a company's marginal cost and revenue are exactly the same, and costs start to go down after that.

When there is a significant positive difference between total revenue and total costs, the producer receives a higher profit.

There are basically three kinds of profit:

(a) A profit for the economy (b) A loss for the economy (c)

Since the quantity that maximizes profit is 1,000 donuts and H makes $12,000, he has to pay $16,000 in annual rent for the store's five-year lease and $500 in other costs.

As a result, he suffers a long-term economic loss because costs exceed revenue.

Since the loss is 9000 divided by 16000 plus 5000, H will eventually leave the market.

Learn more about economic loss here:

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