Carlo Company Makes Bulk Quantities of Cleaning Fluids

question 156

Multiple Choice

Carlo Company makes bulk quantities of cleaning fluids. They currently sell 1,000 containers a month at a price of $22 per unit. If they added a disinfectant, they could charge $25 per unit for the improved product. It would cost them a total of $3,800 per month to make that alteration. What would be the effect on operating income?

• A)It would decline by $1,200.
• B)It would increase by $3,000.
• C)It would increase by $400.
• D)It would decline by $800.

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Definitions:

Short-run Production Function

The short-run production function describes the relationship between input and output levels when at least one input (like capital) is fixed and cannot be changed immediately.

Variable Factor

An input in the production process that can be changed in the short term to influence output.

Fixed Factors

Inputs in the production process that cannot be easily increased or decreased in the short term, such as machinery or land.

Perfect Certainty

A situation in decision making where all outcomes are known and there is no ambiguity or risk.