On a Recent Trip to Starbucks We Noticed That the Price

question 56

Multiple Choice

On a recent trip to Starbucks we noticed that the price of coffee per ounce is highest for the short size, slightly lower for the tall, even lower for the grande, and lowest for the venti. Why do they price this way?

• A)marginal cost curve is downward sloping
• B)the price of the short size captures all the consumer surplus and the others don't
• C)average cost curve is downward sloping
• D)each size has a different elasticity

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Definitions:

Overhead Applied

The allocation of overhead costs to goods produced based on a predetermined rate.

Overhead Incurred

Overhead incurred refers to the total costs associated with running a business that are not directly tied to a specific product or service.

Overhead Applied

The allocation of indirect costs to produced goods or services, based on a predetermined rate or method.

Underapplied Overhead

This refers to the situation where the allocated manufacturing overhead cost is less than the actual overhead cost incurred.