A firm makes two products: frying pans and saucepans. Frying pans sell for $30 each and saucepans sell for $20 each. The variable cost of making a frying pan is $20, and the variable cost of making saucepans is $8. The firm has additional manufacturing costs of $1 million.
Required:
1. If the firm sells 100 more saucepans, what is the additional profit to the firm?
2. If the firm could sell either one more saucepan or one more frying pan, which product would the firm prefer to sell? Why?
3. Under what conditions would the firm want to drop frying pans from the product mix?