Perkins Company Has Been Experiencing Lost Sales and High Returns

question 27

Multiple Choice

Perkins Company has been experiencing lost sales and high returns recently, so they decided to undertake a comprehensive quality program. Here are factors being considered: Perkins knows that if it undertakes this program, it will be able to reduce warranty repair costs by $25,000. They also know they will be able to avoid lost profits by retaining customers, but they cannot quantify that benefit with any degree of precision. Should Perkins go ahead with the quality program?

• A)Yes, they should, regardless of any other considerations.
• B)No, they should not.
• C)They should, only if the benefit of avoiding lost profits is estimated to be over $420,000.
• D)They should, only if the benefit of avoiding lost profits is estimated to be over $445,000.

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Definitions:

Short-Run Equilibrium

A state in which market supply equals demand, determining the price and quantity sold, specifically within a short timeframe.

Profit-Maximizing

This refers to the process businesses use to determine the output level at which profits are at their highest.

Marginal Revenue Curve

A graph that displays how additional revenue is affected by the sale of one more unit of a product or service.

Downsloping

describes a trend or curve that goes downward, often used in economics to describe demand curves where price decreases lead to an increase in quantity demanded.