P4-35. Continue or Discontinue

Lakeland Eye Clinic primarily performs three medical procedures: cataract removal, corneal im-

plants, and laser keratotomy. At the end of the first quarter of this year, Dr. Pathaja, president of

Lakeland, expressed grave concern about the cataract sector because it had reported a loss of

$50,000. He rationalized that since the cataract market is losing $50,000, and the overall practice

is making $165,000, if we eliminate the cataract market, our total profits will increase to $215,000.

Required

a. Is the presidents analysis correct?

b. Will total profits increase if the cataract section is dropped?

c. Is it possible total profits will decline?