Scenario 1-4
Suppose a cigar manufacturer currently sells 1,500 cigars per week and makes a profit of $3,000 per week. The plant foreman observes, "Although the last 500 cell cigars we produced and sold increased our revenue by $7,500 and our costs by $7,000, we are only making an overall profit of $3,000 per week so I think we need to cut back on production."
-Refer to Scenario 1-4. Had the firm not produced and sold the last 500 cigars, would its profit be higher or lower, and if so by how much?

Question

Quizplus · Accepted Answer

If the firm had not produced and sold the last 500 cigars, its revenue would be $7,500 lower, but its costs would also be $7,000 lower (since no additional production cost is incurred). Thus, the overall profit for the week would be $500 higher ($3,000 + $7,500 - $7,000 = $3,500). Therefore, the correct answer is C.

Scenario 1-4 Suppose a Cigar Manufacturer Currently Sells 1,500 Cigars Per Week