Both Saturn Technologies and Granite Inc. incur a cost of $200 to manufacture a single unit of a cell phone. However, Saturn Technologies charges a higher price than Granite Inc. does, but it still sells a higher number of phones. What does this imply?
A) Saturn Technologies and Granite have achieved a competitive parity.
B) Granite Inc. has a competitive advantage over Saturn Technologies.
C) Saturn Technologies creates more economic value than Granite Inc. does.
D) Granite Inc. is not charging enough for its product.

Question

Quizplus · Accepted Answer

Economic value created is the difference between a buyer's willingness to pay for a product or service and the firm's total cost to produce it. Since the cost of production is same for both the companies, the difference in economic value can only be possible when one company has been able to create a more valuable product for which buyers are willing to pay a higher price.