ch06 - CHAPTER 6 DECISION MAKING IN THE SHORT TERM...

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Unformatted text preview: CHAPTER 6 DECISION MAKING IN THE SHORT TERM TRUE/FALSE 1. A temporary gap between the demand and supply of available capacity results because, in the short term, businesses have a fixed supply of capacity but confront changing demand. LO1 True 2. An example of a decision that deals with excess supply is altering the product mix to focus on the most profitable ones. LO1 False An example of a decision that deals with excess demand is altering the product mix to focus on the most profitable ones. 3. The decision of how much capacity to put in place is a long-term decision. LO1 True 4. In the short term, businesses can alter capacity that they have when dealing with fluctuations in demand. LO1 False In the short term, businesses must do the best with the capacity that they have when dealing with fluctuations in demand. 5. With proper planning, businesses can match supply and demand exactly all the time. LO1 False Despite adjustments, businesses can rarely match supply and demand exactly all the time. 6. One reason it might be profitable for a caterer to accept a catering job for Wednesday but reject it for Saturday is because the caterer has excess capacity on Wednesdays. LO2 True 7. When picking the best decision option from among a set of available options, we could consider controllable costs and benefits or relevant costs and benefits. LO2 True 8. Relevant cost analysis involves focusing on only those costs and revenues that differ from a benchmark option. LO2 True 6-1 9. An approach that includes controllable and non-controllable costs and benefits to construct a contribution margin statement for each decision option is referred to as a incremental product approach. LO2 False An approach that includes controllable and non-controllable costs and benefits to construct a contribution margin statement for each decision option is referred to as a totals (gross) approach. 6-2 Decision Making in the Short Term 10. In general, analysis that considers only controllable or relevant costs is less efficient when decision options differ only with respect to a few benefit and cost items. LO2 False In general, analysis that considers only controllable or relevant costs is more efficient when decision options differ only with respect to a few benefit and cost items. 11. Price gouging occurs when a firm exploits temporary excess demand to raise prices to unreasonable levels....
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.

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ch06 - CHAPTER 6 DECISION MAKING IN THE SHORT TERM...

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