Scenario 1-2
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 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 1-2.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

The foreman states that producing and selling the last 500 cigars increased revenue by $7,500 and costs by $7,000. This means the profit from producing and selling these cigars is $500 (revenue of $7,500 minus costs of $7,000). Therefore, if the firm had not produced and sold these cigars, its profit would be $500 lower ($3,000 profit minus $500 profit from the last 500 cigars equals $2,500 profit).

Scenario 1-2 Suppose a Cigar Manufacturer Currently Sells 1,500 Cigars Per Week