Scenario 1-1
Suppose a cell phone manufacturer currently sells 20,000 cell phones per week and makes a profit of $5,000 per week. A manager at the plant observes, "Although the last 3,000 cell phones we produced and sold increased our revenue by $6,000 and our costs by $6,700, we are still making an overall profit of $5,000 per week so I think we're on the right track. We are producing the optimal number of cell phones."
-Refer to Scenario 1-1.Had the firm not produced and sold the last 3,000 cell phones, would its profit be higher or lower, and by how much?
A)Its profit will be $6,700 higher.
B)Its profit will be $700 higher.
C)Its profit will be $700 lower.
D)Its profit will be $6,000 lower.

Question

Quizplus · Accepted Answer

The last 3,000 cell phones increased costs by $6,700 and revenue by $6,000, resulting in a loss of $700. Not producing them would have avoided this loss, making the profit $700 higher.

Scenario 1-1 Suppose a Cell Phone Manufacturer Currently Sells 20,000 Cell Phones