Projecting Sales Price Changes Depends on Factors Specific to the Firm

question 15

Multiple Choice

Projecting sales price changes depends on factors specific to the firm and its industry that might affect demand and price elasticity.Which of the following companies would most likely not be able to increase prices in the near future?

• A) A firm in a capital intensive industry that is expected to operate near capacity for the near future.
• B) A firm in a capital intensive industry in which excess capacity exists.
• C) A firm operating in an industry that is expected to maintain its current production processes.
• D) A firm operating in an industry that is transitioning from the introduction phase to the high growth phase of its life cycle.

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Definitions:

Underlying Asset

The security or asset on which a derivative contract is based, influencing its value and characteristics.

Exercise Price

The predetermined price at which an option's underlying asset can be bought or sold.

Put Option

A put option is a financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.

Exercise Price

The predetermined price at which the holder of an option can buy (in case of a call option) or sell (in case of a put option) the underlying asset.