Final answer:
It is true that continuing to process a joint product post-split-off is profitable if the incremental revenue exceeds incremental costs. This is because the decision-making is based on marginal analysis, comparing marginal costs against marginal revenues. Taking this approach optimizes profit levels until producing additional units no longer adds to profits.
Step-by-step explanation:
The statement that it is profitable to continue processing a joint product after the split-off point so long as the incremental revenue from further processing exceeds the incremental costs of further processing is true. This principle is grounded in the concept of marginal analysis, where decisions are made based on the additional costs and revenues from changing the level of production or processing. If a company can generate more revenue from selling a product at a further processed state than the costs incurred to process it further, the company will increase its profits.
For example, if a farmer increases production from 80 to 90 units and finds that the marginal costs associated with producing those additional units exceed the marginal revenues obtained, the farmer's profits would decrease. Conversely, if producing those additional units led to higher marginal revenue than marginal costs, profits would increase. This concept holds true until the point where marginal revenue equals marginal cost, after which producing additional units would not increase profits and could even lead to losses.
It's also important to note that sometimes, depending on market conditions or cost structures, it may make sense for a firm to close rather than incur losses from continued operation. For example, in a decreasing cost industry, market expansion could lead to a situation where all firms experience lower costs, and profits can be maintained or increased.