A corporation has been steadily losing money on one of its product lines, plastic flamingo lawn ornaments. The firm produces plastic flamingos in a factory that cost $20 million to build 10 years ago. The firm is now considering an offer to buy that factory for $15 million. Which of the following statements about the decision to sell or not to sell is correct?
a. The firm should turn down the purchase offer because the factory cost more than $15 million to build.
b. The $20 million spent on the factory is a sunk cost; that cost should not affect the decision.
c. The $20 million spent on the factory is an implicit cost, which should be included in the decision.
d. The firm should sell the factory only if it can reduce its costs elsewhere by $5 million.
b
You might also like to view...
Refer to the payoff matrix below. If each cell has a probability of occurrence of 0.25, what are Cruise the World's expected profits?
Cruise R Us and Cruise the World compete in the cruise line industry. Each firm needs to determine if they are going to offer special cruise packages with special rates or not offer the specials. The above payoff matrix shows the firms' net economic profit for each set of strategies.
A) $5 B) $10 C) $9 D) $8
The market value of ABC Corp, whose securities are publicly traded, can be found by
a. multiplying the price of its stock by the number of shares outstanding b. dividing the number of shares outstanding by the price of the stock c. adding the total value of its outstanding stock to the total value of its outstanding bonds d. subtracting the total value of its outstanding bonds from the total value of its outstanding stock e. subtracting the total value of its outstanding stock from the total value of its outstanding bonds
Marginal analysis examines the effects of additions to or subtractions from a current situation
a. True b. False Indicate whether the statement is true or false
If real GDP increased by 2% and nominal GDP increased by 4%, then output:
a. increased and the price level increased. b. increased and the price level decreased. c. decreased and the price level increased. d. decreased and the price level decreased.