Which of the Following Is a Correct Quantitative Decision-Rule with Respect

question 9

Multiple Choice

Which of the following is a correct quantitative decision-rule with respect to whether to drop a product?

• A) If the product has a positive contribution margin, then do not drop the product.
• B) If the product is showing a net loss, the product should be dropped.
• C) If the profit of the firm without the product is higher than with the product, the product should be dropped.
• D) If the product has a positive contribution margin, then do not drop the product AND if the profit of the firm without the product is higher than with the product, the product should be dropped.

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Definitions:

Average Variable Costs

Represent the total variable costs (costs that change with production volume) divided by the number of units produced.

Average Variable Cost

The variable cost per unit of output, calculated by dividing total variable costs by the quantity of output produced.

Output

The quantity of goods or services produced in a given time period by a firm, industry, or country.

Total Variable Cost

The sum of all costs that vary with output level, including expenses such as labor and raw materials, but not fixed costs like rent.