# Which of the following statements is (are) TRUE? I. A firm with market power maximizes profit by producing so that P = MC or MR = MC. II. If marginal revenue exceeds marginal cost, the firm should expand output to increase profits. III. If a firm has no costs of production, it should continue producing until marginal revenue falls to zero.

Statement II and III

Explanation:

For Statement I

We know that in a perfect competitive market the profit is maximum where either Marginal Revenue = Marginal Cost, or the Price + Marginal Cost is the point defining the profit.

Therefore, firm having to exercise maximum power in market will produce more up till Marginal Revenue > Marginal Cost.

Therefore, statement I is false.

Statement II

For the time till when the marginal revenue is more than the marginal cost, more and more goods shall be produced to increase the quantum of profit.

as this will assure no losses up to the time where MR>MC.

Thus, statement II is true.

Statement III

If there is no cost of production then entire amount received for a good will be profit, accordingly till the time the marginal revenue does not fall to 0 the goods shall be supplied to consumers, as the entire amount received will be profit with no cost associated.

Thus, statement III is also True.

## Related Questions

Louvers, Inc., accepted a \$15,000, 180-day, 10 percent note from a customer on May 31. Louvers plans to prepare financial statements as of June 30, the end of its fiscal year. Prepare the necessary June 30 adjusting entry for Louvers by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

If Louvers, Inc., accepted a \$15,000, 180-day, 10 percent note from a customer on May 31. The necessary June 30 adjusting entry for Louvers will be:

Debit Interest receivable  \$125

Credit Interest revenue \$125

Debit Interest receivable  \$125

Credit Interest revenue \$125

(\$15,000 × 10% × 30/360)

(To record interest receivable)

The Interest amount  of \$125 calculated as (\$15,000 × 10% × 30/360) is due at maturity. Between May 31 and June30, a total of 30 days passed.

Inconclusion the necessary June 30 adjusting entry for Louvers will be:

Debit Interest receivable  \$125

Credit Interest revenue \$125

Interest receivable

To Interest revenue

(Being the interest receivable is recorded)

Explanation:

The adjusting entry is as follows

Interest receivable

To Interest revenue

(Being the interest receivable is recorded)

The computation is shown below:

= Principal × rate of interest × number of days ÷ (total number of days in a year)

= \$15,000 × 10% × (30 days ÷ 360 days)

= \$125

The 30 days is calculated from May 31 to June 30

On December 31, 2017, Extreme Fitness has adjusted balances of \$800,000 in Accounts Receivable and \$55,000 in Allowance for Doubtful Accounts. On January 2, 2018, the company learns that certain customer accounts are not collectible, so management authorizes a write-off of these accounts totaling \$10,000. What amount would the company report as its net accounts receivable on December 31, 2017? Prepare the journal entry to write off the accounts on January 2, 2018. Assuming no other transactions occurred between December 31, 2017, and January 3, 2018, what amount would the company report as its net accounts receivable on January 3, 2018? Has net accounts receivable changed from December 31, 2017?

Step 1: Calculation of net accounts receivable on December 31, 2017

Net accounts receivable

= Accounts Receivable - Allowance for Doubtful Debts

= \$800,000 - \$55,000

= \$745,000

The company shall report its net accounts receivable on December 31, 2017 as \$745,000.

Step 2: Journal entry to write off the accounts:

Debit             Credit

2-Jan-2018      Allowance for doubtful debts            \$10,000

Accounts receivable                                          \$10,000

Writing off debts not collectible

Step 3: Calculation of net accounts receivable on January 3, 2018:

Net accounts receivable

= Accounts Receivable - Allowance for Doubtful Debts

= \$790,000 - \$45,000

= \$745,000

The company shall report its net accounts receivable on January 3, 2018 as \$745,000. The net accounts receivable has not changed from December 31, 2017 because the write-offs worth \$10,000 were estimated and allowed for in 2017. Hence, the decrease in accounts receivable is offset by an equal decrease in the allowance for doubtful debts.

Extreme Fitness had a Net Accounts Receivable of \$745,000 on December 31, 2017. Even after the write-off of certain accounts totalling \$10,000 on January 2, 2018, the Net Accounts Receivable strikes the same balance on January 3, 2018, because the write-off affects both the Accounts Receivable and Allowance for Doubtful Accounts equally.

### Explanation:

On December 31, 2017, Extreme Fitness had a balance of \$800,000 in Accounts Receivable. This amount was offset by a balance of \$55,000 in Allowance for Doubtful Accounts, resulting in a Net Accounts Receivable of \$745,000 (\$800,000 - \$55,000).

The company learnt on January 2, 2018, about certain uncollectible accounts and authorized a write-off of \$10,000. The journal entry for this would be Debit: Allowance for Doubtful Accounts \$10,000 and Credit: Accounts Receivable \$10,000. This reduces the Book Value of Accounts Receivable by the write-off amount but does not affect the Net Accounts Receivable.

Thus, post the write-off action on January 3, 2018, the total Accounts Receivable would reduce to \$790,000 (\$800,000 - \$10,000), and the Allowance for Doubtful Accounts would reduce to \$45,000 (\$55,000 - \$10,000). The Net Accounts Receivable, however, still stays at \$745,000 (\$790,000 - \$45,000), just as it was on December 31, 2017.

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Delicious Desserts is thinking about ending the production of two types of ice cream. Financial data related to the products is provided below: Rum Raisin Blue Moon
Sales \$680,000 \$573,000
Variable expenses 246,000 219.000
Fixed expenses 468,000 364,000

If Delicious stops making Rum Raisin ice cream, it estimates it can eliminate 75% of the fixed costs associated with that product. Similarly, if it stops making Blue Moon, it estimates it can eliminate 70% of the fixed costs associated with that product.
Given these figures, which of the following statements is true?

A) Delicious would be worse off if it discontinues Rum Raisin and would be better off if it discontinues Blue Moon.
B) Delicious would be better off if it discontinues Rum Raisin and would be worse off if it discontinues Blue Moon.
C) Delicious would be better off if it discontinues both products.
D) Delicious would be worse off if it discontinues either product.

The correct choice here is A)

Delicious would be worse off if it discontinues Rum Raisin and would be better off if it discontinues Blue Moon.

Explanation:

Lets look at the figures:

Step I

Calculate the Total Costs for each product.

Total Cost (TC) = Fixed Cost + Variable Cost

TC for Rum Raisin =

\$246,000+ \$468,000

= \$714,000

TC for Blue Moon =

\$219,000 + \$ 364,000

= \$ 583 000

Step II

The business estimates that it can eliminate it's Fixed cost to a certain degree. Lets look at each before we make a decision.

New TC for each business is given as below:

New TC for Rum Raisin if 75% of Fixed Cost is eliminated =

\$246,000+ (\$468,000 x 25%)

= \$246,000 + \$117,000

New TC for Rum Raisin Ice Cream = \$363,000

New TC for Blue Moon if 70% of it's Fixed Cost is removed =

\$246,000+ (\$468,000 x 30%)

= \$246,000 + \$140,400

New TC for Blue Moon Ice Cream = \$386,400

The company Delicious is better off eliminating the product with the highest TC all other factors remaining accounted for and taken into consideration.

The product which must go is Blue Moon Ice Cream.

Cheers!

The annual interest rate on a credit card is 17.99%. If a payment of \$200.00 ismade each month, how many months will it take to pay off an unpaid balance of
\$2,470.04?

It would take a total of 14.572001 Months to pay off the balance, with interest

Explanation:

\$2470.04 Would take 12.6 months to pay off, therefore, you must apply 17.99% yearly interest to this figure.

\$2470.04 * .1799 = \$444.36 interest

Principal + interest = total

\$2470.04 + \$444.36=  \$2914.4

\$2914.4 / \$200 = 14.57 months

The calculation of how many months it would take to repay a credit card balance, given an annual interest rate and a fixed monthly repayment, is not straightforward due to the compounding effect of interest. However, without considering interest, this would update around 12.35 months to pay off the balance of \$2,470.04 with a monthly payment of \$200.

### Explanation:

The question relates to the concept of credit card debt repayment. Given an annual interest rate of 17.99%, a monthly payment of \$200.00, and a balance of \$2,470.04, it will take significantly longer than just dividing \$2,470.04 by \$200 to pay off the debt. This is because the annual interest rate is compounding on the remaining balance every month.

In order to calculate the exact number of months it would take to pay off the credit card, we'd need to set up and solve a complex mathematical equation which requires a good understanding of logarithms and algebra. In this case, it is best to use a financial calculator or an online credit card repayment calculator. However, on a simple base without accounting for interest, by dividing the balance of \$2,470.04 by the monthly payment of \$200, it would take approximately 12.35 months to pay off the debt. However, due to the added interest, the actual number of months would likely be greater.

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Ramona owns 20% of the stock of Miller, Inc. Miller reports the following items for the current year: Sales \$3,400,000 Gain on sale of stock held for 2 years 250,000 Cost of goods sold 1,800,000 Operating expenses 900,000 Dividends paid to stockholders 180,000 What are the effects on Ramona's taxable income if Miller, Inc. is organized as: a. A corporation? b. An S corporation?

Explanation:

a) A corporation?

A Corporations are taxable entities. Miller, Inc. will pay tax on its income. Ramona will be taxed on dividends received. Ramona has \$36,000 (\$180,000 x 20%) of dividend income from Miller. The dividend income will be taxed at 15%.

b) An S corporation?

An S corporations are conduit entities and do not pay tax on their income. The income from the conduit flows through and is taxed to the owners of the S corporation. Ramona will be taxed on 20% of Miller's income. Capital gains and losses of conduit entities must be reported separately, so that the owners can properly treat them in the calculation of their net capital gain or loss for the year. Miller has \$700,000 (\$3,400,000 - \$1,800,000 - \$900,000) of operating income and a \$250,000 long-term capital gain in the current year. Ramona must include \$140,000 (\$700,000 x 20%) of ordinary income and \$50,000 (\$250,000 x 20%) of long-term capital gain on her individual return. The \$140,000 of ordinary income is added to Ramona's gross income. The long-term capital gain of \$50,000 is netted with other capital gains and losses. Because the income of the conduit is being taxed at the owner level, dividends paid to owners are considered to be returns of capital investment and are not taxed.

Answer: on S corporation taxable income will be affected by 140,000 and on corporation it will be 36000

Taxable income of Ramona

S corporation  Corporation

share on profits 140000          0

dividends           36000

Explanation:

Miller Inc

S corporation     corporation

sales   3400000 3400000

cost of sales   1800000         1800000

gross profit  1600000   1600000

other income  250000         250000

gain on sale of stock  250000   250000

operating expenses  900000 900000

Net Profit   950000         950000

dividends   0       180000

taxable income of Miller Inc

S corporation Corproration

Net Profit   950000          950000

gain on sale of stock -250000    -250000

Taxable Income  700000          700000

for the S corporation Miller gets a share of 20% on the taxable profits of the S corporation and on the corporation he gets 20% of the total dividends to shareholder. The gain is capital in nature and is not taxable income as per SARS.

Other things the same, a fall in an economy's overall level of prices tends to a. raise both the quantity demanded and supplied of goods and services.
b. raise the quantity demanded of goods and services, but lower the quantity supplied.
c. lower the quantity demanded of goods and services, but raise the quantity supplied.
d. lower both the quantity demanded and the quantity supplied of goods and services.