Suppose the Demand Curves for Goods A,B,and C Have the Following

question 151

Multiple Choice

Suppose the demand curves for goods A,B,and C have the following functional forms,where Q denotes quantity demanded,P denotes price,and M denotes income: Q_A = 120 - 3.5P_A - 6P_B + 14M
Q_B = 100 - 2P_B + 3P_C + 1.1M
Q_C = 1500 - 0.5P_C - 300M.
Based on these demand curves,which of the following goods are known to be normal goods?

• A)A
• B)B
• C)C
• D)A and B only
• E)A,B and C

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Definitions:

Variable Costing

A costing method where only variable production costs are assigned to inventory and all fixed overhead costs are expensed in the period they are incurred.

Variable Production Costs

Costs that vary directly with the volume of production, including direct labor and materials.

Traceable Fixed Expense

Fixed costs that can be directly linked to a specific segment of the business, and would disappear if the segment did.

Fixed Manufacturing Overhead

The portion of manufacturing overhead costs that remains constant regardless of the level of production.