A fast-food company spends millions of dollars to develop and promote a new hamb
ID: 1183517 • Letter: A
Question
A fast-food company spends millions of dollars to develop and promote a new hamburger on its menu only to find that consumers won't buy it because they don't like the taste. From an economic perspective, the company should: A - keep the hamburger on the menu because they've spent so much money and time developing and promoting the product. B - spend more money to develop a more efficient way to cook the hamburger so it cooks in a shorter time. C - pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost. D - keep trying to sell the hamburger so that people who developed and promote it have a job with the company.Explanation / Answer
A - keep the hamburger on the menu because they've spent so much money and time developing and promoting the product. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
B - spend more money to develop a more efficient way to cook the hamburger so it cooks in a shorter time.
C - pull the hamburger off the menu and treat the development and promotion expenditures as a sunk cost.
D - keep trying to sell the hamburger so that people who developed and promote it have a job with the company.
As the customers do not like the taste, the best option is to pull it off and consider it as a sunk cost. In contrast, if we spend more money to make it in shorter time as specified in option B, we can reduce the cost of producing it; however, this does not guarantee a purchase or successes of the product.
Option D of trying to sell it to promote the jobs of the company, eventually is a bad decision and results in losses to the company. Furthermore, keeping the hamburger in the menu may affect the brand value and good will of the company so option A is also rejected.
Therefore, the correct option is option C.
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