A Company Has Two Different Products That Sell to Separate

question 96

True/False

A company has two different products that sell to separate markets. Financial data are as follows:
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { Product B } & { \text { Total } } \\\hline \text { Revenue } & \$ 12,000 & \$ 8,000 & \$ 20,000 \\\hline \text { Variable cost } & ( \$ 7,500 ) & ( \$ 8,100 ) & ( \$ 15,600 ) \\\hline \text { Fixed cost (allocated) } & ( \$ 3,000 ) & ( \$ 1,000 ) & ( \$ 4,000 ) \\\hline \text { Operating income } & \$ 1,500 & ( \$ 1,100 ) & \$ 400 \\\hline\end{array}$$
Assume that fixed costs are all unavoidable and that dropping one product would not impact sales of the other. Because the contribution margin of Product B is negative, it should be dropped.

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Definitions:

Advertise

The act of promoting products, services, or brands through various media outlets to inform, persuade, or remind consumers.

Technological Advance

Improvements in technology that increase productivity, enhance efficiency, or create new products and markets.

Industrial Concentration

A measure of the extent to which a relatively small number of firms occupy a large market share within an industry.

Nash Equilibrium

A concept in game theory where no player can benefit by changing strategies if other players keep theirs unchanged.