Final answer:
The company will experience losses of $5 when producing 5 units and selling them at $25 each. Looking at the average cost compared to the price, the company is making losses. The marginal unit produced is not adding to profits.
Step-by-step explanation:
To calculate the company's profits or losses, we need to subtract the total costs from the total revenues. Given that the firm produces 5 units and sells them for $25 each, the total revenue is 5 units x $25/unit = $125. The total costs for producing 5 units are $130. Therefore, the company's losses will be $5 ($125 - $130 = -$5).
Looking at the average cost, we can determine whether the company is making or losing money at this price. If the average cost is greater than the price, the company is making losses. In this case, the average cost is $130/5 units = $26/unit, which is greater than the price of $25/unit. Therefore, the company is making losses.
At the given quantity and price, the marginal unit produced is not adding to profits. The marginal unit produced has a cost of $26, which is greater than the selling price of $25. Therefore, the firm is incurring a loss for every additional unit produced.