Use the Following Statements to Answer This Question

question 21

Multiple Choice

Use the following statements to answer this question. I. To maximize profit, a firm will increase its advertising expenditures until the last dollar of advertising generates an additional dollar of revenue.
II) The full marginal cost of advertising is the sum of the dollar spent directly on advertising and the marginal production cost that results from the increased sales that advertising brings about.

• A) Both I and II are true.
• B) I is true, and II is false.
• C) I is false, and II is true.
• D) Both I and II are false.

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Definitions:

Dividend Payout Ratio

The percentage of earnings paid to shareholders in dividends, indicating how much money a company returns to shareholders vs. retaining.

Internal Growth Rate

The maximum rate at which a company can expand internally without needing to obtain additional external financing.

Capital Intensity Ratio

A metric that measures the amount of capital needed per unit of output, indicating how capital-intensive a business operation is.

Operating Capacity

The maximum output that an organization can produce with its current resources and constraints.