Which of the Following Statements Is CORRECT

question 54

Multiple Choice

Which of the following statements is CORRECT?

• A) If a firm is found guilty of cannibalization in a court of law, then it is judged to have taken unfair advantage of its customers.Thus, cannibalization is dealt with by society through the antitrust laws.
• B) If cannibalization exists, then the cash flows associated with the project must be increased to offset these effects.Otherwise, the calculated NPV will be biased downward.
• C) If cannibalization is determined to exist, then this means that the calculated NPV if cannibalization is considered will be higher than the NPV if this effect is not recognized.
• D) Cannibalization, as described in the text, is a type of externality that is not against the law, and any harm it causes is done to the firm itself.
• E) If a firm is found guilty of cannibalization in a court of law, then it is judged to have taken unfair advantage of its competitors.Thus, cannibalization is dealt with by society through the antitrust laws.

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Definitions:

Marginal Utility

The change in satisfaction or benefit derived from consuming an additional unit of a good or service.

Total Utility

The total satisfaction received from consuming a particular quantity of a good or service.

Diminishing Marginal Utility

The decrease in satisfaction or usefulness obtained from each additional unit of consumption.

Inferior Good

A type of good for which demand decreases as the income of the consumer increases, due to the availability of more desirable substitutes.