238 correct answer d the market clearing equilibrium

Info icon This preview shows pages 308–311. Sign up to view the full content.

View Full Document Right Arrow Icon
238. Correct answer d. The market-clearing (equilibrium) price is the price where quantity demanded equals quantity supplied. The current market-clearing price is $50; if prices increase in the long-run, $70 is a reasonable equilibrium price. 239. Correct answer d. If the demand for a product is elastic, a percentage change in price results in a larger percentage change in demand. If the product price is increased by 1%, the demand will decrease by more than 1%. 240. Correct answer a. If the demand for a product is elastic, a percentage change in price results in a larger percentage change in demand. If the product price is decreased, the demand will increase by a larger percentage resulting in an increase in total revenue. 241. Correct answer c. Leader’s markup percentage would be 133.3% as shown below. Per unit return on investment = ($20,000,000 x .2) ÷ 10,000 = $400 Markup percentage = $400 ÷ $300 = 133.3% 242. Correct answer d. Cost-based pricing is particularly suited to suppliers who provide unique services and products. Therefore, the best situation presented is the make-to-order, state-of-the-art application.
Image of page 308

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
309 243. Correct answer d. Bcc should bid $1,026.30 per unit as shown below. Direct material $ 500.00 Direct labor 340.00 ($20 x 17) Variable overhead 34.00 ($2 x 17) Fixed overhead 51.00 ($3 x 17) Administrative cost 8.00 Subtotal $ 933.00 10% return 93.30 Total $1,026.30 244. Correct answer a. Cost-based pricing is particularly suited to suppliers who provide unique products and services. 245. Correct answer c. Market-based costing is particularly suited to companies operating in a competitive environment. Therefore, option c is not characteristic. 246. Correct answer a. Almelo’s mark-up level is 12.5% as shown below. Markup: $9 - $6 cost - $2 Fixed overhead = $1 Markup %: $1 ÷ $8 = 12.5% 247. Correct answer d. Fennell’s target price is $268 as shown below. 15% after-tax ROI = [($3,000,000 + $1,000,000) x .15] = $600,000 Per unit ROI = $600,000 ÷ 25,000 = $24 Target price = $200 + ($700,000 ÷ 25,000) + [$24 x (1 - .4)] = $200 + $28 + $40 = $268 248. Correct answer c. A monopolist seeking to maximize total profit will produce up to the output at which marginal revenue equals marginal cost. To sell beyond this point, the price would need to be lowered and marginal cost would exceed marginal revenue. 249. Correct answer c. Economic profit is revenue minus both explicit and implicit costs, e.g., opportunity costs. Therefore, in purely competitive markets, economic profits are not likely to be positive. Section D: Risk Management 250. Correct answer a. The situation that occurs annually with an exposure of $2,250 ($15,000 x .15) represents the highest loss exposure. The exposure of the other situations are $1,875 ($75,000 x .2 ÷ 8), $2,000 ($200,000 x .2 ÷ 20) and $2,000 ($400,000 x .5 ÷ 100).
Image of page 309
310 Section E: Investment Decisions 251. Correct answer d. Capital investments generally provide benefits into the future and, therefore, the expenditure is allocated over a period of time (depreciation). Refinancing existing working capital agreements supports current operations and is not generally treated as capital investment project.
Image of page 310

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 311
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern