Question

Each day, Tasty Tortilla Company incurs total costs of $8,000 to process flour into tortillas. The company can then sell the tortillas as is for total daily revenue of $22,500. Alternatively, Tasty can fold and fry the tortillas to make hard taco shells. The additional costs for making the taco shells are $4,200 per day, and the total daily revenues from the finished shells are $26,700. Given these figures,
A : the firm will make an additional $8,000 in income per day if it sells tortillas instead of taco shells.

B : the firm’s income will remain unchanged whether it sells tortillas or taco shells.

C : the firm will make an additional $4,200 in income per day if it sells taco shells instead of tortillas.

D : the firm will make an additional $14,500 in income per day if it sells taco shells instead of tortillas.

Answer 1

Answer:

B: the firm's income will remain unchanged whether it sell tortillas or taco shells

Explanation:

The firm's income will still be the same because additional cost are incurred when producing the taco shells see below for calculation

When the firm processes tortillas: it makes a revenue of $22,500 and a cost of $8,000 realizing a profit of $14,500.

When the firm decides to fry the tortillas to make hard taco shells: it makes a revenue of $26,700 and total cost of $12,200 ($8,000+$4,200) then realizing a profit of $14,500.

Thus, the reason the profit won't change is because the firm incurred additional cost in processing the taco shells.