Calico Company Is Starting Business and Is Unsure of Whether

question 73

Multiple Choice

Calico Company is starting business and is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $90 and Calico Company would sell it for $180. The cost to assemble the product is estimated at $36 per unit and Calico Company believes the market would support a price of $232 on the assembled unit. What is the correct decision using the sell or process further decision rule?

• A) Sell before assembly the company will be better off by $36 per unit.
• B) Sell before assembly the company will be better off by $52 per unit.
• C) Process further the company will be better off by $52 per unit.
• D) Process further the company will be better off by $16 per unit.

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Definitions:

Comparative Advantage

The knack of entities, whether they are people, companies, or countries, to bring forth goods or services at opportunity costs that undercut those of competitors.

Opportunity Costs

Opportunity Costs represent the benefits that are foregone by choosing one option over an alternative one.

Specialization

The focus by an individual, firm, or country on producing a limited range of goods or services, often to improve efficiency and productivity.