Suppose a firm is currently maximizing profit by producing 100 units of output per day. It is then discovered that the firm owes $1,000 for a one-time tax violation that occurred a few years ago. The firm now needs to pay the $1,000 to the government no matter what. How should the firm react to this additional cost? The firm should increase output in order to increase revenue enough to cover the additional cost. The firm should continue to produce 100 units of output per day, as the $1,000 is a sunk cost and therefore has no effect on production decisions. O The firm should shut down in the short run and start back up in the long run. O The firm should decrease output in order to decrease variable costs by $1,000.

Suppose a firm is currently maximizing profit by producing 100 units of output per day. It is then discovered that the firm owes $1,000 for a one-time tax violation that occurred a few years ago. The firm now needs to pay the $1,000 to the government no matter what. How should the firm react to this additional cost? The firm should increase output in order to increase revenue enough to cover the additional cost. The firm should continue to produce 100 units of output per day, as the $1,000 is a sunk cost and therefore has no effect on production decisions. O The firm should shut down in the short run and start back up in the long run. O The firm should decrease output in order to decrease variable costs by $1,000.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Cost of Production

The entire idea of the cost of production or production cost is applied corresponding, or we can say that it is related to monetary cost. Money cost refers to any money expenditure which the firm or supplier, or producer undertakes in purchasing or hiring factor of production or factor services.

Question

Suppose a firm is currently maximizing profit by producing 100 units of output per day. It is then
discovered that the firm owes $1,000 for a one-time tax violation that occurred a few years ago. The
firm now needs to pay the $1,000 to the government no matter what. How should the firm react to this
additional cost?
The firm should increase output in order to increase revenue enough to cover the additional cost.
The firm should continue to produce 100 units of output per day, as the $1,000 is a sunk cost and therefore has
no effect on production decisions.
The firm should shut down in the short run and start back up in the long run.
The firm should decrease output in order to decrease variable costs by $1,000.

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