Tom Produces Commemorative T-Shirts in a Competitive Market

question 217

Multiple Choice

Tom produces commemorative t-shirts in a competitive market. If Tom decides to decrease his output, this will

• A)increase his revenue, since the output decrease leads to a higher market price.
• B)increase his revenue, since Tom's competitors will also decrease their output, so that price rises to offset the drop in Tom's output.
• C)decrease his revenue, since his output has decreased and the price remains the same.
• D)decrease his revenue, since the price falls as competitors increase their output to make up for his decrease in output.

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Definitions:

Cost Ratio

A financial metric that compares two cost-related factors against each other, often used to measure the efficiency or profitability of an operation.

Times Interest Earned Ratio

A financial metric used to measure a company's ability to meet its debt obligations, calculated as earnings before interest and taxes (EBIT) divided by interest expenses.

Operating Activities

The day-to-day activities of a business related to producing and selling its product, providing services, or other activities that are not investing or financing.

Common Size Income Statement

An income statement in which each line item is expressed as a percentage of sales revenue, facilitating comparison across companies or periods.