Clay Inc Has Two Divisions, Myrtle and Laurel

question 36

Multiple Choice

Clay Inc. has two divisions, Myrtle and Laurel. Following is the income statement for the previous year: What would Clay's profit margin be if the Laurel division was dropped and all fixed costs are unavoidable?

• A) $99,625 profit
• B) $91,000 profit
• C) $384,000 profit
• D) $71,000 loss

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Definitions:

Income Effect

The modification of income for someone or within an economy, and its subsequent impact on how much of a good or service is sought after.

Engel Curve

A graph showing the relationship between a consumer's income and their expenditure on a specific good.

Beer Type

Classifications of beer determined by factors like flavor, color, brewing method, and origin.

Substitution Effect

The substitution effect occurs when consumers replace more expensive items with less expensive alternatives due to a change in relative prices.