Bobs Pizza is preparing a production cost budget for October. Actual costs in September for making 8,000 pizzas are: Ingredients cost $ 8,200 Rent 5,100 Labor cost 4,300 Depreciation 800 Other fixed costs 900 The company is currently producing and selling 90,000 pizzas annually with each sold for $15.00. The company is considering lowering the price to $12.50 for which management estimates this will increase sales to 100,000 pizzas. The ingredients and labor are the only variable costs.

a. What is the incremental cost associated with making an additional 100,000 pizzas and what is the incremental revenue associated with the price reduction?

b. Should Bobs Pizza lower the price of its pizzas?