Final answer:
Processing the product further would increase Camp, Inc.'s costs per unit and reduce profit per unit, despite a higher selling price. Economies of scale in production tend to lower average costs, enhancing profitability, but this principle may not apply to additional processing costs of individual units.
Step-by-step explanation:
When analyzing whether Camp, Inc. should process its product further to increase profitability, we must consider the cost to manufacture and the selling price of both the basic and more complex product. The initial cost to manufacture 1,000 units is $35 per unit. If processed further, there is an additional $30 per unit cost, making the total cost for the more complex product $65 per unit. At a selling price of $50 for the basic product, Camp's profit per unit is $15. However, the more complex product, selling at $75, would yield a profit of $10 per unit. Despite the higher selling price, the additional processing costs reduce the overall profit per unit.
Illustrating with industries that experience economies of scale (computer company, alarm clock production, toaster oven production), we understand the concept that producing more units can lower the average cost per unit. This, in turn, could increase profitability if the selling price remains constant or increases. However, economies of scale may not always apply to the additional processing of a single unit; instead, they tend to be more applicable to the production increases of a single product type.