Donder Milling Company Purchases Logs and Mills Them into Various

question 62

Multiple Choice

Donder Milling Company purchases logs and mills them into various grades of lumber. During the sawing and planning process, a considerable amount of sawdust is generated. Currently, Donder sells the sawdust to a particle board manufacturer for $50 per truckload. Donder is considering processing the sawdust into particle board itself. One truckload of sawdust can be made into 20 sheets of particle board selling for $8 per sheet. Further processing costs are $7 per board.
-Refer to the Figure.Assume that the cost of logs falls by half.Should Donder sell the sawdust at split-off or process it further,and what is the effect on income?

• A)Process further; the reduction in the cost of logs makes that option more profitable than it was before.
• B)Sell at split-off; the decrease in the cost of the logs makes that option more profitable than it was before.
• C)Sell at split-off; the reduction in the cost of the logs is irrelevant.
• D)Process further; the reduction in the cost of the logs will lower further processing costs.

Differentiate between the characteristics of monopolistic competition and other market structures.

Understand the role of advertising and product differentiation in monopolistic competition.

Analyze factors contributing to excess capacity in monopolistic competition.

Identify conditions under which firms in monopolistic competition can earn profits in the short run but break even in the long run.

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Definitions:

Diaphragm

A large, dome-shaped muscle located below the lungs that plays a key role in breathing.

Aspiration

The act of drawing in or out using a sucking motion, often refers to the medical procedure of removing substances from the body.

Respiratory

Pertaining to or affecting respiration or the organs involved in respiration.

Tuberculosis

A contagious bacterial infection that primarily affects the lungs but can also damage other parts of the body.