What are the limitations in using break-even analysis?
What will be an ideal response?
It requires the use of linear cost and revenue functions; it isn't applicable if the functions are non-linear. It assumes that there are fixed costs, which means the analysis can be applied only to short-run operations. It can't handle multiple product situations, unless the product mixes are constant. It can't be used to determine profit-maximizing levels of operations.
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A multi-plant firm has three plants and, at its current production levels, the marginal cost of production at each of the three plants is $3. If the firm is perfectly competitive and the market price of its product is $9, which of the following is true?
A) The firm is producing the profit-maximizing total output. B) The firm should exactly triple output in each of the plants to maximize profit. C) The firm should increase output at each of the plants to maximize profit. D) The firm should decrease output at each of the plants to maximize profit.
An increase in total revenue results occurs from which of the following?
a. Price decreases when demand is inelastic. b. Price increases when demand is elastic. c. Price decreases when demand is elastic. d. Price increases when demand is unitary elastic.
The central bank of Alanza, a developing economy, persistently intervenes in the foreign exchange market to prevent its currency from appreciating against the dollar. Which of the following is the most probable consequence of this intervention by the central bank?
A. Alanza's exports will decline in the near future. B. Alanza's trade deficit with the United States will increase. C. The money supply in Alanza will decline. D. The rate of inflation in Alanza will increase.
Many businesses face the same customers over and over again. Repeat business generally:
A. is the sign of a poorly run business. B. increases ethical behavior toward customers. C. is a sign of poor product quality. D. reduces ethical behavior toward customers.