When a firm's credit standards is relaxed ________.
A) its sales is expected to decrease with corresponding increase in costs
B) its costs is expected to decrease with corresponding decrease in sales
C) its costs is expected to increase faster than sales if the standards are not relaxed
D) its profit contribution from sales will be greater than the cost contribution

Question

Quizplus · Accepted Answer

When a firm relaxes its credit standards, it generally expects to increase sales because more customers are able to buy on credit. This increase in sales can lead to a greater profit contribution, even though costs associated with credit sales (like bad debts and administrative costs) may also increase. The key is that the incremental profits from the additional sales are expected to outweigh these additional costs.

When a Firm's Credit Standards Is Relaxed ________