A shoe manufacturer is producing at a point where its marginal costs are $5 and its fixed costs are $5000. At the current price

Question

3 years ago

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A shoe manufacturer is producing at a point where its marginal costs are $5 and its fixed costs are $5000. At the current price

of $10 it is producing 500 pairs. If the demand goes down, such that they can now only charge $8 per pair, should they continue production in the short run?

Business

1 answer:

balu736 [363] · Answer 1 · 2022-09-11T04:21:17+03:00

Answer:

In a short time, as long as the product line can be sold with a positive contribution margin, the company should continue selling it.

Explanation:

Giving the following information:

UNitary variable cost= $5

Fixed costs are $5000.

Sales= 500 units

Selling price= $8

First, we need to calculate the current income:

Income= 500*(8-5) - 5000= -$3,500

In a short time, as long as the product line can be sold with a positive contribution margin, the company should continue selling it. Demand can increase and income could become positive.