Missouri Company Has a Current Production Capacity Level of 200,000

question 42

Multiple Choice

Missouri Company has a current production capacity level of 200,000 units per month.At this level of production,variable costs are $0.50 per unit and fixed costs are $0.50 per unit.Current monthly sales are 173,000 units.Gates Company has contracted Missouri Company about purchasing 20,000 units at $1.00 each.Current sales would not be affected by the special order and no additional fixed costs would be incurred on the special order.If the order is accepted,what is Missouri Company's change in profits?

• A)$20,000 increase
• B)$20,000 decrease
• C)$10,000 increase
• D)$10,000 decrease

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Definitions:

Utility Theory

A theory in economics and finance that describes how individuals choose among different options or actions based on their expected happiness or satisfaction.

Framing

The way a decision is phrased or the way options are described. Seemingly peripheral aspects of the framing can influence decisions by changing the point of reference.

Double-Or-Nothing

A gamble or bet in which the stakes are either doubled or lost entirely.

Coin Flip

A basic probability event with two possible outcomes, heads or tails, often used to illustrate randomness or make simple decisions.