LAMA Creations Creates Sweaters Using the Wool of the Llama

question 38

Multiple Choice

LAMA Creations creates sweaters using the wool of the Llama. The wool used in the manufacturing process is ordered by the bundle. LAMA requires 1,200 bundles of Llama wool per year and places orders of 100 bundles at a time. The cost of ordering is $80.00 per order and the carrying cost per bundle is $3.50. LAMA Creations' cost may change if the order quantity is increased from 100 bundles to 200 bundles at a time. What is the cost difference between the ordering costs with orders of 100 bundles as compared to orders of 200 bundles?

• A) $520.00
• B) $0.00
• C) $960.00
• D) $480.00

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Definitions:

Demand Curve

A graphical representation that shows the relationship between the price of a good and the quantity of that good consumers are willing to buy.

Long-Run Equilibrium

A state in economics where all factors of production and economic variables are in balance, and no external pressures are causing change.

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.