Multiple Choice
Which of the following is a characteristic of a common market?
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0. Basic Principles of Economics
Introduction to Economics
Multiple Choice
In the context of joint products, when is it profitable to continue processing a joint product after the split-off point?
A
When the joint product has a higher market price than the other products
B
When the sunk costs of production are fully recovered
C
When the incremental revenue from further processing exceeds the incremental cost of processing
D
When the total cost of production is less than the total revenue from all products
Verified step by step guidance1
Understand the concept of joint products: these are multiple products generated simultaneously from a common input or production process, with a split-off point where the products become separately identifiable.
Recognize that costs incurred before the split-off point are joint costs and are sunk with respect to decisions made after the split-off point.
Identify that the decision to continue processing a joint product beyond the split-off point depends on comparing additional (incremental) revenues and costs incurred after the split-off point.
Formulate the decision rule: continue processing if the incremental revenue from further processing the joint product exceeds the incremental cost of that processing. Mathematically, continue if \(\text{Incremental Revenue} > \text{Incremental Cost}\).
Note that other options like comparing total costs to total revenues or market prices alone do not determine profitability after the split-off point because sunk joint costs should not influence the decision.
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