A firm produces three products A, B, and C. Long-run projected sales per year are 10,000 units of A, 12,000 units of B, and 8,000 of C.
a) Determine whether the firm should remain in business under the following conditions: Good A sells at $5.00 per unit, and AVC is $3.50. Good B sells at $7.50 per unit, and AVC is $5.00. Good C sells at $10.00 per unit, and AVC is $7.50. Total fixed cost is $60,000 per year.
b) If the firm allocates fixed cost using standard accounting pracitces (allocation of fixed cost to each good is based on the good's proportion of total sales), what is the total accounting profit for each good?