1.1-33 Question Help * Allison\'s Auto Art is a company that applios pinstripes

Question

1.1-33 Question Help * Allison's Auto Art is a company that applios pinstripes to vehicles. Allison's cost for a basic 1 -color pinstriping job is $35, and she charges $95 for this service. For a total price of $175, Allison will apply a fancier 3-color pinstripe ap Should Allison continue to offer the 3-color pinstripe application? A. no, her marginal benefit is less than her marginal cost O B. yes, but only if she lowers the price of the 1-color application O C. yes, she stil makes a profit by selling the 3-color application 0 D. More information is needed for Alison to make this decision.

Explanation / Answer

It has been stated Allison charges $95 for basic 1-color pinstriping job. If Allison applies fancier 3-color pinstripe application then it charges $175.

This means that if Allison moves from basic 1-color pinstripe job to 3-color pinstripe application then it can earn an additional revenue of ($175 - $95) $80.

So, marginal revenue from 3-color pinstripe application is $80.

It has also been stated that the marginal cost (additional cost) of providing 3-color pinstripe application is $40.

Since, marginal revenue is greater than the marginal cost in case of providing 3-color pinstripe application, Allison still makes profit by selling 3-color application.

Hence, the correct answer is the option (C).

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