A Corporation Has Been Steadily Losing Money on One of Its

question 41

Multiple Choice

A corporation has been steadily losing money on one of its product lines, plastic flamingo lawn ornaments. The firm produces plastic flamingos in a factory that cost $20 million to build 10 years ago. The firm is now considering an offer to buy that factory for $15 million. Which of the following statements about the decision to sell or not to sell is correct?

• A)The firm should turn down the purchase offer because the factory cost more than $15 million to build.
• B)The $20 million spent on the factory is a sunk cost; that cost should not affect the decision.
• C)The $20 million spent on the factory is an implicit cost, which should be included in the decision.
• D)The firm should sell the factory only if it can reduce its costs elsewhere by $5 million.

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Definitions:

Traditional Chinese Medicine

A holistic medical system from China, using practices like acupuncture and herbal medicine to treat various conditions.

Channels

Pathways or mediums through which information, substances, or forces are conveyed or transmitted.

Acupuncture

An ancient Chinese form of analgesia that consists of inserting needles into specific points on the skin and continuously stimulating the needles.

Specific Points

Defined locations or aspects in a given context that require focused attention or action for a particular purpose or outcome.