A Company Has the Choice of Either Selling 1,000 Defective

question 23

Multiple Choice

A company has the choice of either selling 1,000 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $4.00 per unit. Alternatively, it could rebuild them with incremental costs of $1.00 per unit for materials, $2.00 per unit for labor, and $1.50 per unit for overhead, and then sell the rebuilt units for $8.00 each. If the company rebuilds the units, what is the impact on income?

• A) Income will increase by $4,000.
• B) Income will increase by $500.
• C) Income will decrease by $4,500.
• D) Income will decrease by $500.
• E) Income will increase by $8,000.

Recognize the impact of buyer's inability to distinguish product quality on market prices.

Understand the concept of adverse selection in markets with asymmetric information.

Analyze how market equilibrium is affected by the presence of products of varying quality.

Understand the concept of relative measures of emission output in evaluating environmental impacts.

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Definitions:

Multiple-choice Test

A standardized form of assessment where respondents choose the correct answer from several options presented for each question.

Overlearning

The practice of continuing to study or practice beyond the point of initial mastery, improving retention and recall of information.

Counterproductive

Activities or behaviors that hinder the attainment of a goal rather than assisting in its achievement.

Verbatim

Word for word; in exactly the same words as were originally used.