Allison's Auto Art is a company that applies pinstripes to vehicles.Allison's cost for a basic 1-colour pinstriping job is $35,and she charges $95 for this service.For a total price of $175,Allison will apply a fancier 3-colour pinstripe to an automobile,a service that adds an additional $40 to the total cost of the package.Should Allison continue to offer the 3-colour pinstripe application?

Question

Quizplus · Accepted Answer

To determine whether or not to continue offering the 3-colour pinstripe application, we need to compare the marginal benefit to the marginal cost. The marginal benefit is the difference between the price charged for the 3-colour application ($175) and the price charged for the 1-colour application ($95), plus the additional cost for the extra colours ($40).

Marginal benefit = $175 - $95 - $40 = $40

The marginal cost is the additional cost to Allison for applying the extra colours.

Marginal cost = $40

Since the marginal benefit ($40) is greater than the marginal cost ($40), Allison will still make a profit by offering the 3-colour application, and therefore should continue to offer it. The answers B, C, and D are all incorrect, as they do not reflect this conclusion.

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