what type of startup capital is characterized by knowledge, routines, and inventions embodied in new venture processes and pract
1 answer:
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Answer: $489,000
Explanation:
Amount of sales required = (Fixed cost + Desired operating income ) / Contribution margin ratio
Contribution margin ratio for Cover-to-Cover Company:
= Contribution margin / sales
= 77,800/ 389,000
= 20%
Desired operating income = Current income + income increase
= 58,350 + 20,000
= $78,350
Amount of sales required:
= (19,450 + 78,350) / 20%
= $489,000
Answer: B. In the short run, the typical firm increases its output and makes an above normal profit.
Explanation:
I have attached a graph to explain.
Originally the Perfectly Competitive Market is in a long run Equilibrium.
This means that at 5000 units the $20 selling price was as a result of Marginal Revenue being equal to Marginal Cost.
Now a sudden change in Demand has taken the price up which then forces the Marginal Revenue Curve upwards.
This will culminate with the Marginal Revenue Curve now intersecting the Marginal Cost curve at a higher point being point F so that profit can be maximised.
This higher level will thus lead to a higher output than 5000 units at point Q as the firm will increase output.
Notice that at that point the Marginal Revenue is higher than Average Total Cost meaning that an Above normal profit is being made.
Do react or comment if you need any clarification.
