A Company Has Two Different Products That Sell to Separate

question 94

True/False

A company has two different products that sell to separate markets.Financial data are as follows:
$$\begin{array} { | l | r | r | r | } \hline & \text { Product A } & \text { Product B } & { \text { Total } } \\\hline \text { Revenue } & \$ 15,000 & \$ 9,000 & \$ 24,000 \\\hline \text { Variable costs } & ( 7,000 ) & ( 9,200 ) & ( 16,200 ) \\\hline \text { Fixed costs (allocated) } & ( 4,000 ) & \underline { ( 1,000 ) } & \underline { ( 5,000 ) } \\\hline \text { Operating income (loss) } & \$ 4,000 & \$ ( 1,200 ) & \$ 2,800 \\\hline\end{array}$$ 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:

Utility Function

A mathematical representation showing how different combinations of goods or services create levels of happiness or satisfaction for a consumer.

Indifference Curve

A graph showing different bundles of goods between which a consumer is indifferent, meaning they have no preference for one combination over another, all else being equal.

Apples

While commonly known as a fruit, in economics, "apples" could metaphorically refer to any basic commodity used in comparative analysis.

Bananas

A tropical, edible fruit, curved in shape and rich in potassium, produced by various types of large herbaceous flowering plants.