Question

Suppose a business is currently charging $5 for a widget and the average total cost of producing a widget is $7. From that information we know that O fixed costs must be really large for the business. O the revenues from selling widgets must be negative o the profit from selling widgets can be negative. O average fixed costs must be rising from producing widgets. SUBMIT

Answer 1

Option C - The profit from selling widgets can be negative.

If the company is charging = $5 for a widget and

Average Total Cost = $7

Then the profit which is = Total Revenue - Total Cost

= Revenue from selling one widget - Cost from selling one widget

= (Price * Quantity) - Cost

= (5 * 1) - 7

= 5 - 7

= - 2

So, we see that the profit from selling a widget is negative.

Option A states that fixed cost must be really large which we cannot know from the information given in the question. Option B states that revenues from selling widgets must be negative which is not correct. Revenue which is equal to Quantity * Price would also be a positive number as Quantity and Price are always positive. Option D states that average fixed cost must be rising from producing widgets which we again cannot know from the information given in your question.