A company is producing 15,00 . units. At this output level, ...

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A company is producing 15,00 . units. At this output level, marginal revenue is 22 and the marginal cost is 18 . The firm sells each unit for 48 and average total cost is 40 . What can we conclude from this information?
 a. The company is making a loss
  b. The company needs to cut production
  c. The company needs to increase production
  d. Not enough information is provided

Question 2

Investment in Musical Acts Signing new music acts can be highly speculative. Record producers at music studios have to get budget approval before they sign a new act to a recording deal. Most acts perform a tried and true form of popular music in which record sales can be pretty well predicted. However, once they get approval for their budgets, why do producers sometimes sign riskier acts who either flop or break-out into the next sensation?

[morrie123456]

Answer to Question 1

c

Answer to Question 2

This is a moral hazard issue. Record producers are investing other people's money and so have an incentive to switch to riskier investments once the funding has been secured. If the risky act flops, the company loses the money. If it succeeds, they get credit for discovering the new sound.