Abigail's Auto Art is a company that applies pinstripes to vehicles. Abigail's cost for a basic 1-colour pinstriping job is $40, and she charges $100 for this service. For a total price of $185, Abigail will apply a fancier 3-colour pinstripe application to an automobile, a service that adds an additional $50 to the total cost of the package. Should Abigail continue to offer the 3-colour pinstripe application?
A)Yes, she still makes a profit by selling the 3-colour application.
B)Yes, but only if she lowers the price of the 1-colour application.
C)No, her marginal benefit is less than her marginal cost.
D)More information is needed for Abigail to make this decision.

Question

Quizplus · Accepted Answer

To determine whether Abigail should continue to offer the 3-colour pinstripe application, we need to compare the cost of providing the service to the revenue generated by it.

For a basic 1-colour pinstriping job, Abigail's cost is $40 and she charges $100, which results in a profit of $60 per job.

For the fancier 3-colour pinstripe application, Abigail's cost is $90 ($40 for the basic job plus an additional $50 for the 3 colours), which means that she would need to charge at least $190 to break even ($90 in cost + $100 in profit). However, she is only charging $185, which means that she is still making a profit of $95 ($185 in revenue - $90 in cost).

Therefore, Abigail should continue to offer the 3-colour pinstripe application as it is still profitable for her.

Abigail's Auto Art Is a Company That Applies Pinstripes to Vehicles