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Bezzdna [24]
3 years ago
9

A firm sells a product in a purely competitive market. The marginal cost of the product at the current output of 200 units is $4

.00. The average variable cost is $3.50. The market price of the product is $3.00. To maximize profits or minimize losses, the firm should
A. Continue producing 1,000 units
B. Produce less than 1,000 units
C. Produce more than 1,000 units
D. Shut down
Business
1 answer:
Eddi Din [679]3 years ago
6 0

Answer:

The correct answer is option B.

Explanation:

A firm sells a product in a purely competitive market.

The marginal cost of the product at the current output of 200 units is $4.00.

The average variable cost is $3.50.

The market price of the product is $3.00.

The market price is not covering the average variable cost. In this situation, the firm must be incurring losses. To minimize losses the firm should produce less than 1,000 units at the point where marginal cost is equal to market price and the average variable cost is being covered.

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Answer:

The current share price is $54.29

Explanation:

Hi, to find the price of this share, we need to bring to present value all the future cash flow that this share will provide. Since the dividend is a constant dividend, we can find the price using the following equation.

Price=\frac{Div((1+r)^{n}-1) }{r(1+r)^{n} }

where:

r= required rate of return of the stock

Div = constant dividend (in our case, $7.55

n = years in which the share will provide dividends

Everything should look like this

Price=\frac{7.55((1+0.11)^{15}-1) }{0.11(1+0.11)^{15} }=54.29

So, the price of the stock today would be $54.29

Best of luck.

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