Dock Corporation Makes Two Products from a Common Input

question 315

Multiple Choice

Dock Corporation makes two products from a common input. Joint processing costs up to the split-off point total $33,600 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: What is the financial advantage (disadvantage) for the company of processing Product X beyond the split-off point?

• A) ($3,500)
• B) $27,700
• C) $20,500
• D) $3,700

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Definitions:

Entry Barriers

Refers to obstacles that hinder new firms from entering a market, such as patents, strong brand loyalty among existing customers, or high capital requirements, essentially similar to barriers to entry but rephrased.

Short Run

A time period during which at least one factor of production is fixed, limiting the ability of the firm to adjust to changes in demand or production costs.

Profit-Maximizing

The strategy or method of modifying the production and sales of products and services to attain the maximum possible profit.

Monopolist

A singular entity or company that has exclusive control over the supply of a particular good or service, giving it significant market power.