Final answer:
The break-even point will increase when there is a shift to higher volumes of low contribution margin products because the per composite unit contribution margin will decrease, requiring more unit sales to cover fixed costs. The correct option is D.
Step-by-step explanation:
If the sales mix in a multi-product environment shifts to a higher volume in low contribution margin products, the break-even point will:
- d. increase because the per composite unit contribution margin will decrease
The break-even point is the point at which total costs are equal to total revenues, meaning that the business is neither making a profit nor a loss. The contribution margin is the difference between the sales price of a product and the variable costs associated with producing that product.
In a multi-product environment, if the sales mix shifts towards products with a lower contribution margin, the overall (composite) contribution margin will decrease. This means that more units must be sold to cover the fixed costs, subsequently increasing the break-even point.
It's important to note that marginal revenue and marginal cost are related but separate concepts that influence pricing and output decisions in economics. Marginal revenue refers to the additional revenue generated from selling one more unit of a product.
If marginal revenue shifts, it implies that either the demand curve has shifted or that pricing strategies have changed, potentially leading to different levels of output and profits.