If by dropping a product a firm can avoid more in fixed costs than it loses in contribution margin,then the firm is better off economically if the product is dropped.

Question

Quizplus · Accepted Answer

This is because fixed costs are not affected by changes in output or sales, while contribution margin is the amount by which sales revenue exceeds variable costs. Therefore, if the firm can avoid more in fixed costs by dropping the product, then the loss in contribution margin is outweighed by the cost savings, making it economically beneficial to drop the product.

If by Dropping a Product a Firm Can Avoid More