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Answer: 36,000 units.
In the long run, a firm must earn at least zero economic profit to continue operations, as it needs to cover the opportunity cost of all factors of production, including labor and capital. The contribution margin per unit is calculated as the selling price ($37.50) minus the average variable cost ($12.50), which equals $25. The breakeven production level is determined by dividing the total fixed costs ($900,000) by the contribution margin ($25), resulting in 36,000 units. At this production level, total revenues cover both variable and fixed costs, ensuring the firm can sustain operations. Options A and C are incorrect because they either understate or overstate the required production level.
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An analyst gathers the following information about a company:
$12.50$37.50$900,000The minimum production level required for the company to continue operations in the long run is most likely:
A
24,000 units.
B
36,000 units.
C
72,000 units.