Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of
$7,000. The division sales for the year were $1,054,000 and the variable costs were $864,000. The fixed costs of the division were $197,000. If the mountain bike division is dropped, 30% of the fixed costs allocated to that division could be eliminated. The impact on operating income for eliminating this business segment would be:
1 answer:
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Your <em>question is not clear enough</em>. However it could be inferred you want details plotted out of the supply and demand schedule as outlined in attached image.
<u>Explanation:</u>
- From the information in the attached image only a price of $4 brings supply and demand into equilibrium, with an equilibrium quantity of 2.
- Also at a price of $4, consumer surplus is $4 and producer surplus is $4. Total surplus is $4+$4=$8.
- The law of diminishing returns applies here and so If Ernie produced one fewer bottle, his producer surplus would decline to $3. If Bert consumed one fewer bottle, his consumer surplus would decline to $3. So total surplus would decline to $3+$3=$6.
- Finally, when Ernie produced one additional bottle of water, his cost would be $5, From Ernie's supply schedule and Bert's demand schedule, the quantity demanded and supplied is only $4, so his producer surplus would decline by $1. If Bert consumed one additional bottle of water, his value would be $3, but the price is $4, so his consumer surplus would decline by $1. So total surplus declines by $1+$1 = $2.
