The Major Shortcoming of Using Operating Income as an Investment

question 8

True/False

The major shortcoming of using operating income as an investment center performance measure is that, it ignores the amount of assets invested in each center.

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Definitions:

Marginal Cost

The additional expenditure required to produce one more unit of a product or service.

Marginal Revenue Curve

A graphical representation showing how marginal revenue varies with changes in the quantity of goods or services sold.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good consumers are willing to buy.

MR (Marginal Revenue)

The increase in revenue that results from selling one additional unit of a product or service.