Answer to Question #64874 in Economics for Chinyere Clareth

Question

The total cost of a product is #700 (Fc= #300, Vc= #400) the company wants to sell at #900 naira per product while a contract for 1 million products is requested for #700 each. Should the company accept the contract or Reject it. Show your calculation before you advice

Fc- Fixed cost
Vc- Varaible cost

Answer 1

ATC = #700, AFC = #300, AVC= #400, the company wants to sell at P = #900 naira per product while a contract for Q = 1 million products is requested for #700 each.
The projected profit under the contract will be: TP = TR - TC = P*Q - ATC*Q = 700*1,000,000 - 700*1,000,000 = 0.
So, the company may accept the contract, if it agrees to receive normal (zero) profit.