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a company has already invested $5 million in developing a new product. the marketing department reports that the introduction of competing products has reduced the expected sales of the new product to $3million. if it would cost an additional $2 million to produce the product, should the company produce the product?

Sagot :

The total cost involved in the project will be $7 million. The most that can be made from the project's development will be not more than $3 million. In such a situation, no one will go ahead with the project.

The cost initially invested, i.e., $5 million, cannot be recovered—an additional $2 million is required to finish the product's development. If the product development is stopped, then the entire investment your $5 million will be wasted but you if you spend the additional $2 million, you will still be at a loss of $4 million. Putting additional $2 million to save only $1 million is still a huge loss and is not the right decision.

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