Spurrier Corporation Produces Two Intermediate Products,A and B,from a Common

question 118

Essay

Spurrier Corporation produces two intermediate products,A and B,from a common input.Intermediate product A can be further processed into end product X.Intermediate product B can be further processed into end product Y.The common input is purchased in batches that cost $50 each and the cost of processing a batch to produce intermediate products A and B is $15.Intermediate product A can be sold as is for $28 or processed further for $18 to make end product X that is sold for $43.Intermediate product B can be sold as is for $31 or processed further for $24 to make end product Y that is sold for $68.
Required:
a.Assuming that no other costs are involved in processing potatoes or in selling products,how much money does the company make from processing one batch of the common input into the end products X and Y? Show your work!
b.Should each of the intermediate products,A and B,be sold as is or processed further into an end product? Explain.

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Definitions:

Market Price

The present cost for purchasing or selling a product or service in a market setting.

Influence

Influence is the capacity to have an effect on the character, development, or behavior of someone or something, or the effect itself.

Perfectly Competitive Market

A perfectly competitive market is one in which there are many buyers and sellers, all of whom have complete market information, and where the goods being traded are identical, leading to one market price.

Incentive

A factor, monetary or otherwise, that motivates individuals or entities to act in a particular way or to pursue a certain course of action.