A Company Has Two Different Products That Sell to Separate

question 134

True/False

A company has two different products that sell to separate markets. Financial data are as follows:
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { Product B } & { \text { Total } } \\\hline \text { Revenue } & \$ 15,000 & \$ 9,000 & \$ 24,000 \\\hline \text { Variable cost } & ( 8,000 ) & ( 9,200 ) & ( 17,200 ) \\\text { Fixed cost (allocated) } & \underline { ( 4,000 } ) & \underline { ( 1,000 } ) & ( 5,000 ) \\\hline \text { Operating income } & \underline { \$ , 000 } & \underline { \$ ( 1,200 ) } & \$ 1,800 \\\hline\end{array}$$ Assume that fixed costs are all unavoidable and that dropping one product would not impact sales of the other. Because the contribution margin of Product B is negative, it should be dropped.

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Definitions:

Equilibrium Price

The price in the market where the amount of products offered matches the amount of products desired.

Socially Optimal

A condition or outcome that is most efficient and beneficial for society as a whole, often considered in economic policies and strategies.

Tobacco Industry

A sector comprising companies that grow, manufacture, and sell tobacco products.

Equilibrium Price

The market price at which the quantity of goods supplied equals the quantity of goods demanded, leading to market stability.