When a 2 Percent Increase in Price Generates a Greater

question 54

Multiple Choice

When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, then:

• A) demand is inelastic.
• B) total revenue increases as a result of the price increase
• C) total revenue decreases as a result of the price increase.
• D) demand is unit elastic.

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Definitions:

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to allocate manufacturing overhead costs to products.

Manufacturing Overhead

All indirect costs associated with manufacturing, excluding direct material and direct labor costs, such as utilities and rent for the manufacturing space.

Machine-Hours

A measure of the amount of time machines are used in the production process, used as a basis for allocating manufacturing overhead costs.

Fixed Manufacturing Overhead

Indirect manufacturing costs that remain constant regardless of the level of production, such as salaries of supervisors and rent of the factory building.