The company that you manage has already spent $8 million on developing a new product – a website that combines You Tube, Twitter, and Facebook – called You Twit Face. The development is not quite finished. It will cost an extra $2 million to finish development and complete the product. Assume that this $2 million amount includes the explicit costs and any opportunity cost that the company may have. At a recent meeting, your salespeople report that the expected sales of your new product (if you finish) are $6 million total. If you do not finish developing the product you can sell the incomplete product to another company for $2 million.
3. The company that you manage has already spent $8 million on developing a new product – a
website that combines You Tube, Twitter, and Facebook – called You Twit Face. The
development is not quite finished. It will cost an extra $2 million to finish development and
complete the product. Assume that this $2 million amount includes the explicit costs and any
the expected sales of your new product (if you finish) are $6 million total. If you do not finish
developing the product you can sell the incomplete product to another company for $2 million.
What is the MC of finishing the development? __________________
What is the MB of finishing the development? __________________
Should you finish the product? Why or why not? Use the idea of “thinking at the margin” to
explain your answer.
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