The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. at a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $2 million. if it would cost $4 million to finish development and make the product, you go ahead and do so. the most you should pay to complete development is $ million.

$5 million

Explanation:

The initial investment of $5 million is now a sunk cost and is essentially irrelevant to future decision making.

If you stop production you will have spent $5 million.

If you continue, you will still have spent $5 million.

However,

if you spend an additional $4 million you will make $2 million giving you a loss of $2 million.

If you want to look at this mathematically:

Cost of stopping production: $5 million

Cost of continuing:

= $5 million + $4 million - $2 million

= $7 million

As you can see, the cost of continuing is higher. So, he will be willing to pay the amount that is below $5 million because it costs him $7 million to get $2 million in sales.

Therefore, the most he should pay to complete development is $5 million that is the cost of stopping production.

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know

answer; blank(1); /rises; blank(2); //increases;