Question 1

Which of the following is true regarding expenses related to specific market structure types?

Accepted Answer

The answer of Which of the following is true regarding...

Question 2

Which of the following markets is characterized by the following: many buyers and sellers, a homogeneous product, easy entry into and exit from the industry, and all firms are price takers?

Accepted Answer

A perfectly competitive market is characterized by many buyers and sellers, a homogeneous product, easy entry into and exit from the industry, and all firms are price takers. Monopolistic competition has differentiated products, while monopolies have a single seller and face no competition. Oligopolies have few sellers and can exert some control over prices.

Question 3

Which of the following markets is characterized by the following: a single firm in the industry, a unique product, and difficult entry into the industry?

Accepted Answer

A monopoly is characterized by a single firm in the industry, a unique product, and difficult entry into the industry. In a perfectly competitive market, there are many firms selling identical products, while in a monopolistic competition, there are many firms selling differentiated products. An oligopoly is characterized by a small number of firms dominating the market.

Question 4

Scottish Company manufactures a variety of toys and games. John Chisholm, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in 2018 when 30,000 were projected. Sales for 2019 look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed.
What is the profit (loss) from Option One?

Accepted Answer

Option One involves cutting the price to $70 and selling 15,000 units. The calculation is as follows: Revenue = 15,000 units * $70/unit = $1,050,000. Variable Costs = 15,000 units * $56/unit = $840,000. Fixed Costs = $100,000. Total Costs = $840,000 (Variable) + $100,000 (Fixed) = $940,000. Profit = Revenue - Total Costs = $1,050,000 - $940,000 = $110,000.

Question 5

The Lancashire Corporation manufactures bottled water with an average manufacturing cost of $2 per case (a case contains 24 bottles). Bayview sold 1,000,000 cases last year to the following types of customers: $$\begin{array} { | l | c | c | } 
\hline \text { USTOMER } & \text { PRICE PER CASE } & \text { CASES SOLD } \
\hline \text { Drugstore chains } & \$ 5.00 & 375,000 \
\hline \text { Gas station chains } & \$ 5.50 & 125,000 \
\hline \text { Supermarket chains } & \$ 6.50 & 500,000 \
\hline \text { Local pharmacies } & \$ 6.00 & 250,000 \
\hline
\end{array}$$
The drugstore chains have special handling costs of $0.20 a case and increased administrative assistance costing $45,000 per year.
The gas station chains require special marketing promotions that cost $50,000. Sales commissions of 10% are paid.
The supermarket chains order electronically through EDI which costs $25,000 annually. Bayview is responsible for shipping costs, which totaled $0.50 a case and special labels costing $0.02 per bottle
Local pharmacies have special handling costs of $0.10 per case and sales commissions are paid to agents costing $0.25 per case. Bad debt expense averages 10% of sales.
What is the total cost per case for drugstore chains?

Accepted Answer

The answer of The Lancashire Corporation manufactures bottled water with...

Question 6

The income statement of Cadmium Inc., for the month of January of the current year is as follows: $\begin{array}{lr}
\text { Revenues }&&\$12,000\
\text { Cost of goods sold: }\
\text { Direct materials } & \$ 6,000 \
\text { Direct labor } & 4,000 \
\text { Overhead } & 2,000&\$12,000\
\text { Gross profit } && \$ 9,000 \
\text { Selling and administrative expenses } && 2,000 \
\text { Onerating income } && \$ 7,000
\end{array}$
Determine the markup based on cost of goods sold (COGS).

Accepted Answer

Markup based on COGS = (Selling price - COGS) / COGS= (12,000 - 12,000) / 12,000= 0 / 12,000= 0= 0%

Question 7

Scottish Company manufactures a variety of toys and games. John Chisholm, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in 2018 when 30,000 were projected. Sales for 2019 look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed.
What is the profit (loss) from Option Two?

Accepted Answer

For Option Two, the price is cut to $60, and material costs are reduced by $10 (from $56 to $46). The fixed costs are reduced by $60,000 (from $100,000 to $40,000 due to the cut in advertising). With an anticipated volume of 10,000 units, the calculation is as follows:Revenue = 10,000 units * $60/unit = $600,000Variable Costs = 10,000 units * $46/unit = $460,000Fixed Costs = $40,000Profit = Revenue - Variable Costs - Fixed CostsProfit = $600,000 - $460,000 - $40,000 = $100,000

Question 8

Which of the following markets is characterized by the following: many firms in the industry, a somewhat unique product, fairly easy entry into the industry, and spending for differentiation of the product?

Accepted Answer

The characteristics described fit the definition of monopolistic competition, where there are many firms offering slightly different products and competition is based on product differentiation. It is relatively easy to enter the market, but each firm spends on advertising and product development to stand out.

Question 9

Scottish Company manufactures a variety of toys and games. John Chisholm, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in 2018 when 30,000 were projected. Sales for 2019 look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed.
What is the profit (loss) from Option Three?

Accepted Answer

For Option Three, the calculation is as follows: - Sales revenue: 15,000 units * $80 = $1,200,000 - Cost of goods sold: 15,000 units * $56 = $840,000 - Fixed costs: $100,000 - Rebate expense: 15,000 units * 30% redemption rate * $10 rebate = $45,000 Total profit = Sales revenue - Cost of goods sold - Fixed costs - Rebate expense = $1,200,000 - $840,000 - $100,000 - $45,000 = $215,000

Question 10

Theta, Inc., sells three different products. The following information is provided by Theta: $\begin{array}{lrrrr}
&&&\text { Sales Quantity }&\text { Sales Quantity }\
\text { Product } & \text { Old Price } & \text { New Price } &\text { (at old price) }&\text { (at NEW price) }\
\text { Alpha } & \$ 20.00 & \$ 25.00 & 5,000 & 5,100 \
\text { Beta } & 10.00 & 5.00 & 8,000 & 14,000 \
\text { Gamma } & 40.00 & 39.00 & 900 & 850
\end{array}$ Which of the following is the price elasticity of demand for the product Beta? (Give the answer to one decimal place.)

Accepted Answer

The price elasticity of demand for product Beta is calculated as follows:Price elasticity of demand = (% change in quantity demanded) / (% change in price)% change in quantity demanded = (14,000 - 8,000) / 8,000 = 0.75% change in price = (5 - 10) / 10 = -0.5Price elasticity of demand = 0.75 / -0.5 = -1.5Therefore, the price elasticity of demand for product Beta is -1.5, which is closest to choice A.

Question 11

The Lancashire Corporation manufactures bottled water with an average manufacturing cost of $2 per case (a case contains 24 bottles). Bayview sold 1,000,000 cases last year to the following types of customers: $$\begin{array} { | l | c | c | } 
\hline \text { USTOMER } & \text { PRICE PER CASE } & \text { CASES SOLD } \
\hline \text { Drugstore chains } & \$ 5.00 & 375,000 \
\hline \text { Gas station chains } & \$ 5.50 & 125,000 \
\hline \text { Supermarket chains } & \$ 6.50 & 500,000 \
\hline \text { Local pharmacies } & \$ 6.00 & 250,000 \
\hline
\end{array}$$ The drugstore chains have special handling costs of $0.20 a case and increased administrative assistance costing $45,000 per year.
The gas station chains require special marketing promotions that cost $50,000. Sales commissions of 10% are paid.
The supermarket chains order electronically through EDI which costs $25,000 annually. Bayview is responsible for shipping costs, which totaled $0.50 a case and special labels costing $0.02 per bottle
Local pharmacies have special handling costs of $0.10 per case and sales commissions are paid to agents costing $0.25 per case. Bad debt expense averages 10% of sales.
What is the profit per case for drugstore chains?

Accepted Answer

The profit per case for drugstore chains is $2.68. This is calculated as follows:Selling price per case: $5.00Manufacturing cost per case: $2.00Special handling costs: $0.20Administrative assistance: $45,000 / 375,000 cases = $0.12Sales commissions: 10% of $5.00 = $0.50Shipping costs: $0.50Special labels: $0.02 per bottle * 24 bottles = $0.48Total costs: $2.00 + $0.20 + $0.12 + $0.50 + $0.50 + $0.48 = $3.80Profit per case: $5.00 - $3.80 = $2.68

Question 12

The Lancashire Corporation manufactures bottled water with an average manufacturing cost of $2 per case (a case contains 24 bottles). Bayview sold 1,000,000 cases last year to the following types of customers: $$\begin{array} { | l | c | c | } 
\hline \text { USTOMER } & \text { PRICE PER CASE } & \text { CASES SOLD } \
\hline \text { Drugstore chains } & \$ 5.00 & 375,000 \
\hline \text { Gas station chains } & \$ 5.50 & 125,000 \
\hline \text { Supermarket chains } & \$ 6.50 & 500,000 \
\hline \text { Local pharmacies } & \$ 6.00 & 250,000 \
\hline
\end{array}$$ The drugstore chains have special handling costs of $0.20 a case and increased administrative assistance costing $45,000 per year.
The gas station chains require special marketing promotions that cost $50,000. Sales commissions of 10% are paid.
The supermarket chains order electronically through EDI which costs $25,000 annually. Bayview is responsible for shipping costs, which totaled $0.50 a case and special labels costing $0.02 per bottle
Local pharmacies have special handling costs of $0.10 per case and sales commissions are paid to agents costing $0.25 per case. Bad debt expense averages 10% of sales.
What customer type is the most profitable ?

Accepted Answer

Supermarket chains are the most profitable when considering the revenue minus the costs associated with each type of customer.

Question 13

Which of the following markets is characterized by the following: only a few firms in the industry, a fairly unique product, difficult entry into the industry, and spending for differentiation of the product?

Accepted Answer

An oligopoly is characterized by only a few firms in the industry, a fairly unique product, difficult entry into the industry, and spending for differentiation of the product. In contrast, a perfectly competitive market has many firms selling identical products, easy entry and exit, and no control over the price by any individual firm. A monopolistic competition has many firms selling differentiated products, somewhat easy entry into the industry, and some control over price by individual firms. A monopoly has only one firm, no competition, and complete control over price.

Question 14

Johanson Company had the following information: $\begin{array}{lr}
\text { Revenues }&&\$400,000\
\text { Cost of goods sold: }\
\text { Direct materials } & \$ 100,000 \
\text { Direct labor } & 50,000 \
\text { Overhead } & 50,000&\$200,000\
\text { Gross profit } && \$ 200,000 \
\text { Selling and administrative expenses } &&75,000 \
\text { Onerating income } && \$125,000
\end{array}$ What is the markup based on prime costs?

Accepted Answer

Markup based on prime costs is calculated as [(Selling Price - Prime Cost) / Prime Cost] * 100. Prime costs include direct materials and direct labor, totaling $150,000 ($100,000 + $50,000). The selling price is the revenue, which is $400,000. Thus, the markup is [($400,000 - $150,000) / $150,000] * 100 = 166.7%.

Question 15

Scottish Company manufactures a variety of toys and games. John Chisholm, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in 2018 when 30,000 were projected. Sales for 2019 look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed.
Which option is preferred?

Accepted Answer

Option Two is the preferred choice as it results in the highest contribution margin. The contribution margin for Option Two is $23 per unit, calculated as ($160 - $46) per unit. This is higher than the contribution margin for Option One, which is $14 per unit, calculated as ($70 - $56) per unit. Option Three has a higher selling price, but the mail-in rebate offer decreases the contribution margin to $12 per unit, calculated as ($70 - $56 - $8) per unit. Therefore, Option Two is the best choice.

Question 16

Which type of expenses does a monopoly usually incur that are different from the other types of market structures?

Accepted Answer

The answer of Which type of expenses does a monopoly...

Question 17

Monopolistic competition is best defined as

Accepted Answer

Monopolistic competition is a market structure that has many buyers and sellers, but the products are differentiated on some basis. Customers are willing to pay a little more for the unique feature that appeals to them. This structure combines elements of both perfect competition and monopoly, but is closer to a competitive situation. Therefore, all of the above options are correct.

Question 18

The Lancashire Corporation manufactures bottled water with an average manufacturing cost of $2 per case (a case contains 24 bottles). Bayview sold 1,000,000 cases last year to the following types of customers: $$\begin{array} { | l | c | c | } 
\hline \text { USTOMER } & \text { PRICE PER CASE } & \text { CASES SOLD } \
\hline \text { Drugstore chains } & \$ 5.00 & 375,000 \
\hline \text { Gas station chains } & \$ 5.50 & 125,000 \
\hline \text { Supermarket chains } & \$ 6.50 & 500,000 \
\hline \text { Local pharmacies } & \$ 6.00 & 250,000 \
\hline
\end{array}$$ The drugstore chains have special handling costs of $0.20 a case and increased administrative assistance costing $45,000 per year.
The gas station chains require special marketing promotions that cost $50,000. Sales commissions of 10% are paid.
The supermarket chains order electronically through EDI which costs $25,000 annually. Bayview is responsible for shipping costs, which totaled $0.50 a case and special labels costing $0.02 per bottle
Local pharmacies have special handling costs of $0.10 per case and sales commissions are paid to agents costing $0.25 per case. Bad debt expense averages 10% of sales.
What customer type has the least total cost per case ?

Accepted Answer

The answer of The Lancashire Corporation manufactures bottled water with...

Question 19

Which of the following statements is FALSE?

Accepted Answer

The statement "The markup is an absolute rule" is false. Markup can vary depending on the product, industry or market conditions. It is not a fixed, universal rule.

Question 20

Oligopoly is a market structure:

Accepted Answer

Oligopoly is a market structure where there are a few sellers, and the barriers to entry are usually cost-related. This means that it is difficult for new firms to enter the industry, making it a less competitive market structure than perfect competition. However, it is not as concentrated as a monopoly, where there is only one firm in the market. Oligopolies often have significant market power and can influence prices and output, leading to potential collusion and game theory behavior among the few firms in the industry.

Quiz 18: Pricing and Profitability Analysis

Which of the following is true regarding expenses related to specific market structure types?

Which of the following markets is characterized by the following: many buyers and sellers, a homogeneous product, easy entry into and exit from the industry, and all firms are price takers?

Which of the following markets is characterized by the following: a single firm in the industry, a unique product, and difficult entry into the industry?

Which of the following markets is characterized by the following: many firms in the industry, a somewhat unique product, fairly easy entry into the industry, and spending for differentiation of the product?

Which of the following markets is characterized by the following: only a few firms in the industry, a fairly unique product, difficult entry into the industry, and spending for differentiation of the product?

Which type of expenses does a monopoly usually incur that are different from the other types of market structures?

Monopolistic competition is best defined as

Which of the following statements is FALSE?

Oligopoly is a market structure: