Macaulay Company Has Three Product Lines-D, E, and F

question 75

Multiple Choice

Macaulay Company has three product lines-D, E, and F. The following information is available: Macaulay Company is thinking of dropping product line F because it is reporting an operating loss. Assuming fixed costs are unavoidable, if Macaulay Company drops product line F and does not replace it, what effect will this have on operating income?

• A)Operating income will increase $5,000.
• B)Operating income will increase $20,000.
• C)Operating income will increase $25,000.
• D)Operating income will decrease $20,000.

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Definitions:

Unit Elasticity

A situation in economics where the percentage change in quantity demanded or supplied is equal to the percentage change in price.

Quantity Demanded

Quantity demanded is the total amount of a goods or services that consumers are willing and able to purchase at a specific price level.

Product X

A placeholder name commonly used to denote a specific product, goods, or service in economic models and discussions that is not further specified.

Midpoint Method

A technique used in economics to calculate the elasticity of demand or supply between two points by averaging the two end points' prices and quantities.