Suppose a manufacturing firm that is about to be regulated faces the following actual and potential production costs: 1) $2,500 before regulation; 2) $2,925 in the future without the regulation; and 3) $3,240 in the future with the regulation. The before/after cost of the regulation is ________ and the with/without cost of the regulation is ________.
A) $425; $740
B) $425; $315
C) $740; $315
D) $315; $425

Question

Quizplus · Accepted Answer

The before/after cost of the regulation is the difference between the cost before regulation and the cost with regulation, which is $3,240 - $2,500 = $740. The with/without cost of the regulation is the difference between the cost without regulation and the cost with regulation, which is $2,925 - $3,240 = -$315. Since the cost is negative, the firm would actually save money by implementing the regulation. Therefore, choice C is the best answer.

Suppose a Manufacturing Firm That Is About to Be Regulated