A Firm Has Excess Capacity, and Has Received an Order

A firm has excess capacity, and has received an order for 50 000 units at $20 each over and above its normal production activity of 600 000 units. To meet this order, new equipment at a cost of $200 000 would have to be bought, and this equipment would have to be scrapped after the order had been filled. The firm currently sells for $50 per unit, has variable costs of $15.80, and fixed costs of $600 000. What is the additional profit (loss) for the firm if it accepts the order?

A) Loss of $10 000
B) Profit of $40 000
C) Loss of $40 000
D) Profit of $10 000

Correct Answer:

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