When Consumers' Incomes Increased 6 Percent, the Quantity of Wine

question 38

Multiple Choice

When consumers' incomes increased 6 percent, the quantity of wine bought increased 12 percent. This result means

• A) wine is a luxury.
• B) the demand for wine is income inelastic.
• C) wine is a necessity.
• D) wine is an inferior good.

Analyze the impact of changes in sales volume, selling price, and cost structure on net operating income.

Calculate and interpret the margin of safety in both dollar and percentage terms.

Understand the concept of operating leverage and its effect on profitability.

Analyze the effects of fixed and variable costs on a company's financial performance.

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Definitions:

Long Run

Period in which all inputs or factors of production can be varied, and all costs are variable, allowing companies to adjust to changes in market demand or production capabilities.

Average Costs

A calculation that determines the cost of producing one unit of goods by averaging the total production costs.

Returns to Scale

A concept in economics that describes how the increase in inputs affects the level of output of a production process.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with costs per unit of output generally decreasing with increasing scale.