A new product should be introduced if its profit contribution:
A) exceeds the shadow price of each resource needed to produce it.
B) is less than the opportunity cost of producing it.
C) exceeds the total value of the resources used, valued at their respective shadow prices.
D) is greater than zero.
E) is greater than the profit contributions of the other goods produced by the firm.

Question

Quizplus · Accepted Answer

The correct answer is C because the profit contribution of a new product should indeed exceed the total value of the resources used to produce it, where the value of these resources is determined by their shadow prices. Shadow prices reflect the opportunity cost of using resources in one activity instead of their best alternative use. If the profit from the new product exceeds this measure, it indicates that producing the product is a better use of the resources than any alternative.

A New Product Should Be Introduced If Its Profit Contribution