An international corporation that produces alcoholic beverages, Happy Hour Inc.,

Question

An international corporation that produces alcoholic beverages, Happy Hour Inc., has already invested in the capital to produce a new brand of mass-market wine, Château d'Eugne. The firm's cost structure is illustrated below. Due to heavy competition with other producers of similar wines, the price of Château d'Eugne is set by the market at $9.00/bottle.

A. Happy Hour Inc. will turn a profit on Château d'Eugne and expand the brand in the future.

B. Happy Hour Inc. will break even on Château d'Eugne, neither turning a profit nor incurring a loss.

C. Happy Hour Inc. will suffer a loss on Château d'Eugne. However, they will continue to produce, but also discontinue the brand at some point in the future.

D. Happy Hour Inc. will immediately cease the production of Château d'Eugne.

Explanation / Answer

A. Happy Hour Inc. will turn a profit on Château d'Eugne and expand the brand in the future.

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