Business – 5.4 Costs – Uses of cost information | e-Consult
5.4 Costs – Uses of cost information (1 questions)
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Answer 3
Calculate the additional cost of producing the extra 20 loaves:
- Additional Cost = MC × Additional Units = £4 × 20 = £80.
Calculate the additional revenue from the extra 20 loaves:
- Additional Revenue = Price × Additional Units = £6 × 20 = £120.
Since Additional Revenue (£120) > Additional Cost (£80), the bakery will increase profit by £40 by expanding output to 120 loaves. Therefore, the bakery should increase production.