The Optional Amount of Information to Acquire Before Making a Purchase

question 148

Multiple Choice

The optional amount of information to acquire before making a purchase is

• A) zero.
• B) as much as technically possible.
• C) the amount where the total cost of acquiring information equals the total benefit.
• D) independent of the expenditure to be made.
• E) the amount where the marginal cost of acquiring information equals the marginal benefit.

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Definitions:

Carrying Costs

The cumulative expenses associated with maintaining inventory, which encompass storage fees, insurance premiums, taxes, the decrease in value over time, and the costs related to missed opportunities.

Shortage Costs

Costs incurred when demand exceeds supply, leading to inventory shortages, potentially including lost sales, backorder costs, and customer dissatisfaction.

Stock Out Costs

The costs associated with running out of stock, including lost sales, diminished customer loyalty, and operational disruption.

Accounts Payable Period

The Accounts Payable Period is the average amount of time it takes for a business to pay off its suppliers after receiving goods or services.