At a price of $80, Summit's market research indicates that it can sell 60,000 units per year. Assuming Summit can reach its new target cost, how will Summit's profit at the $80 price compare to what it would have earned in the absence of the competitor's product?
A) Profit will be $75,000 higher.
B) Profit will be $75,000 lower.
C) Profit will be unaffected if Summit can reach the revised target cost.
D) None of the above.

Question

Quizplus · Accepted Answer

Summit's profit at the $80 price will be $75,000 higher than it would have earned in the absence of the competitor's product. This is because Summit's new target cost is lower than its previous target cost, so it will be able to sell more units at the same price and earn a higher profit.

At a Price of $80, Summit's Market Research Indicates That