If Easing a Firm's Credit Policy Lengthens the Collection Period

question 81

Multiple Choice

If easing a firm's credit policy lengthens the collection period and results in a worsening of the aging schedule, then why do firms take such actions?

• A) It normally stimulates sales.
• B) To meet competitive pressures.
• C) To increase the firm's deferral period for payables.
• D) Statements a and b are correct.
• E) All of the statements above are correct.

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Definitions:

Variable Cost

Costs that vary directly with the level of production or output, such as materials and labor, in contrast to fixed costs, which remain constant regardless of output levels.

Long-Run Average Total Cost Curve

A graphical representation that shows the lowest cost at which a firm can produce any given level of output in the long run, when all inputs are variable.

Output

Output refers to the amount of goods or services produced by a firm or economy within a certain period.

Physical Capital

Consists of tangible, man-made objects that a business uses to produce goods or services, such as buildings, machinery, and equipment.