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Your fiRm Currently Sells 500 Units a Month at a Price

question 279

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Your firm currently sells 500 units a month at a price of $75 a unit. You think you can increase your sales by an additional 130 units if you switch to a net 30 credit policy. The monthly interest rate is .4
Percent and your variable cost per unit is $35. What is the incremental cash inflow from the
Proposed credit policy switch?


Definitions:

Opportunity Cost

The cost of choosing one option over another, represented by the value of the foregone alternative.

Deadweight Loss

An economic inefficiency occurring when there is an imbalance between supply and demand leading to a loss of economic value, often caused by government interventions like taxes or subsidies.

Equilibrium Quantity

The amount of products or services available and sought after at the market's balance price.

Supply Curve

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

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