Question

American Chemical Company manufactures a chemical compound that is sold for $52 per gallon. A new variant of the chemical has been discovered, and if the basic compound were processed into the new variant, the selling price would be $83 per gallon. American expects the market for the new compound variant to be 8,000 gallons initially and determines that processing costs to refine the basic compound into the new variant would be $160,000.
a. What would be the effect on total profit if American produces the new compound variant?

If American produces the new compound, profit will increase/decrease by ?

Answer 1

Answer:

If American produces the new compound, profit will increase by $88,000

Explanation:

increase in selling price = selling price of new variant of chemical - selling price of chemical compound

                                         = $83 - $52

                                         = $31

Net increase in profit = total increase in selling price - additional processing cost

                                    = $31*8000 - $160000

                                    = $248000 - $160000

                                    = $88,000

Therefore, If American produces the new compound, profit will increase by $88,000.

net increase in profit =