Question

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.

Had the firm not produced and sold the last 500​ cigars, would its profit be higher or​ lower, and if so by how​ much?
(A) Its profit would be exist300 lower
(B) Its profit would be exist 1,000 higher.
(C) Its profit would be exist500 higher.
(D) Its profit would be exist1, 500 lower

Answer 1

The correct answer is D.

Step-by-step explanation:

Giving the following information:

The last 500 cigars we produced and sold increased revenue by​ $7,500 and costs by​ $7,000.

The increase in profit by the last 500 cigars:

7500 - 7000= $500

If the firm had not produced the las 500 cigars, the profit would have decreased by $500.