Refer to the Information Provided in Figure 14

question 60

Multiple Choice

Refer to the information provided in Figure 14.1 below to answer the question(s) that follow. Figure 14.1
-Refer to Figure 14.1. Six firms that produce chewing gum form a cartel. The cartel faces the market demand curve given by D. To maximize profits, the cartel should produce ________ packs of chewing gum and the price should be ________.

• A) 12,000; $.25
• B) 12,000; $.40
• C) 14,000; $.30
• D) 16,000; $.35

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Definitions:

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, highlighting the impact of fixed costs.

Variable Expenses

Costs that vary directly with the level of production or sales volume.

Operating Income

Earnings before interest and taxes (EBIT), representing the profit from a company’s ordinary, core business operations.

Contribution Format

An income statement layout that separates fixed and variable costs, allowing for the calculation of contribution margin and easier analysis of profitability.