Problem #1:

American Chemical Company manufactures a chemical compound that is sold for $56 per gallon. A new variant of the chemical has been discovered, and if the basic compound were processed into the new variant, the selling price would be $80 per gallon. American expects the market for the new compound variant to be 8,700 gallons initially and determines that processing costs to refine the basic compound into the new variant would be $139,200.

Required:

a. What would be the effect on total profit if American produces the new compound variant?

b. Should American produce the new compound variant?