Mann Corporation Has a Joint Process, Which Produces Three Products

question 61

Multiple Choice

Mann Corporation has a joint process, which produces three products, A, B and C. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $125,000. Other relevant data are as follows:

-Once product A is produced, processing it further will cause profits to

• A) increase by $40,000.
• B) decrease by $20,000.
• C) decrease by $40,000.
• D) increase by $20,000.

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Definitions:

Barriers to Entry

Factors that prevent or impede the ability of a new competitor to enter and operate in an industry.

Monopoly

An economic condition where only one seller offers a distinctive product in the marketplace, with no similar alternatives available.

Natural Monopoly

A market condition where due to high fixed or start-up costs, efficient service is provided by a single firm instead of multiple competing firms, often seen in utilities sectors.

Fair-Return Price

For natural monopolies subject to rate (price) regulation, the price that would allow the regulated monopoly to earn a normal profit; a price equal to average total cost.