The firm XYZ Drive-Thru produces french fries as well as a related product: hamburgers. French fries...
The firm XYZ Drive-Thru produces french fries as well as a related product: hamburgers. French fries have $10,200,000 in revenue, and hamburgers have $3,000,000 revenue.
French fries cost the firm $11,100,000, and hamburgers cost the firm $1,750,000.
If the firm drops french fries, then revenue for hamburgers will decrease by 50%. The firm cannot avoid $290,000 of the cost of producing french fries.
Which of the following is TRUE?
| a. |
It is $610,000 MORE profitable to drop the french fries product than to keep it. |
|
| b. |
It is $900,000 LESS profitable to drop the french fries product than to keep it. |
|
| c. |
It is $600,000 MORE profitable to drop the french fries product than to keep it. |
|
| d. |
It is $890,000 LESS profitable to drop the french fries product than to keep it. |
Homework Answers
Loss of profits in dropping French fries = $10,200,000-$10,810,000
= -610,000
I.e. loss of 610,000 will be avoided
Effect on hamburgers:loss of profits = 1,500,000-875,000
=$625,000
The correct answer is a. It is $610,000 more profitable to drop French fries product than to keep it.
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