Answer:
a. Income before advertising budget increase:
= Contribution margin - Fixed costs
= (38 * 3,600) - 79,000
= $57,800
Income after advertising budget increases:
= Sales - Variable expenses - Fixed expenses
Sales = (3,600 + 100 units) * 95 per unit
= $351,500
Variable expenses = 60% * 351,500
= $210,900
Fixed expenses = 79,000 + 8,400 advertising
= $87,400
Income = 351,500 - 210,900 - 87,400
= $53,200
b. Income decreased with the increase in advertising so<u> Advertising budget should not be increased. </u>
Factors of production<span> is an economic term that describes the inputs that are used in the </span>production<span> of goods or services in order to make an economic profit. The </span>factors of production<span> include land, labor, capital and entrepreneurship.</span>
In economics, diminishing returns is the decrease in the marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant.