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Summit Products,Inc.is interested in producing and selling an improved widget.Market research indicates that customers would be willing to pay $90 for such a widget and that 50,000 units could be sold each year at this price.The current cost to produce the widget is estimated to be $65.
-At a price of $80,Summit's market research indicates that it can sell 60,000 units per year.Assuming Summit can reach its new target cost,how will Summit's profit at the $80 price compare to what it would have earned in the absence of the competitor's product?
A)Profit will be $75,000 higher.
B)Profit will be $75,000 lower.
C)Profit will be unaffected if Summit can reach the revised target cost.
D)Profit will be $37,500 higher.

Question

Quizplus · Accepted Answer

At the $90 price point, the profit per unit would be $90 - $65 = $25, and with 50,000 units sold, the total profit would be $25 * 50,000 = $1,250,000. At the $80 price point, assuming the cost can be reduced to $65, the profit per unit would be $80 - $65 = $15, and with 60,000 units sold, the total profit would be $15 * 60,000 = $900,000. However, the question seems to imply a comparison under a scenario where costs are adjusted to meet a new target, potentially leading to a misunderstanding in the calculation. Given the data, the correct calculation for the comparison should consider the change in total profit between selling 50,000 units at a $25 profit each and 60,000 units at a $15 profit each. The correct approach would involve recalculating based on the provided information and the assumption that the cost can be adjusted to meet the target for selling at $80.

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