Division a of a Firm Produces a Single Product, Which

question 25

Multiple Choice

Division A of a firm produces a single product, which is sold only to Division B. Division A has a total investment of $1,000,000, while Division B has a total investment of $2,000,000. Division A annually sells 100,000 units of its product to Division B for $5 per unit and earns $150,000 in operating profit. Division B currently earns $250,000. If Division A raises its selling price to $6 per unit and nothing else changes,

• A) Division A's ROI will increase to 20%
• B) The firm's overall ROI will rise
• C) The firm's overall ROI will fall
• D) The firm's overall ROI will remain unchanged

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Definitions:

Marginal Cost

Marginal cost is the change in total cost that arises when the quantity produced changes by one unit. It's pivotal in decision-making processes regarding increasing or decreasing production.

Marginal Revenue

The extra financial gain from selling an additional unit of a product or service.

Profit

The profit earned when the revenue generated from a business operation surpasses all its associated expenses, costs, and taxes required for the operation.

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single participant can significantly influence price or supply.