A Company Produces Products A, B and C and the Profit

question 96

Multiple Choice

A company produces products A, B and C and the profit and loss statement for the past twelve months shows the following (in thousands) details.
The company is considering dropping Product C. If it does this, the fixed costs will remain the same except that the firm will be able to rent out excess factory space at $30 000 per annum. If other revenue and cost figures remained the same, what would be the effect on annual profit of dropping Product C?

• A) 0
• B) Increase of $30 000
• C) Increase of $40 000
• D) Decrease of $10 000

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Definitions:

Rational People

Individuals or decision-makers who systematically and purposefully do the best they can to achieve their objectives, making decisions based on available information and logical reasoning.

Marginal Analysis

Investigating the increased advantages of an activity relative to its increased financial burdens.

Vogue

The prevailing fashion, style, or trend at a particular time, often used in the context of clothing, vernacular, or popular culture.

Sports Illustrated

A popular magazine known for its extensive coverage of sports and annual swimsuit issue.