Martin Optical Has Found That 2% of Credit Sales Turn

question 131

Multiple Choice

Martin Optical has found that 2% of credit sales turn into bad debts and it costs the company $2,000 in administration expenses per year to manage the bad debts.Martin Optical obtains $30,000 of credit sales each year that it would not otherwise obtain if it did not offer credit.In addition,the $30,000 of credit sales earns Martin Optical $12,000 per year.What is the net gain (loss) of continuing to offer credit to its customers?

• A)$10,000
• B)$12,000
• C)$2,000
• D)$9,400
• E)$2,600

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Definitions:

Profit-Maximizing

The strategy or practice of adjusting production and distribution to achieve the highest possible profit from operations.

Marginal Revenue Function

A calculation that shows how much extra revenue a firm will receive from selling one more unit of a product or service.

Demand

Describes the amount of a product or service that buyers are ready and can afford to buy at different prices over a specific time frame.

Book

A written or printed work consisting of pages glued or sewn together along one side and bound in covers.