Which Statement Describes an Example of a Vicious Cycle Due

question 93

Multiple Choice

Which statement describes an example of a vicious cycle due to network effects in the market for a network good?

• A) Marginal costs rise, making it increasingly difficult for a firm to cover its costs.
• B) A firm that has been growing rapidly due to network effects starts to lose customers to a new substitute good, reducing the number of customers more rapidly.
• C) A recession causes a jump in unemployment in the market area. As unemployed people cut back on spending, the drop in sales causes firms to lay off more workers, increasing unemployment and causing firms to fail.
• D) The firm must raise prices to sell more due to network effects, but the increase in price discourages purchases, causing the firm to constantly function in conflict with itself.

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Definitions:

Manufacturer's Inventory

Includes raw materials, work in process, and finished goods held by a manufacturer, representing various stages of production.

Raw Materials Inventory

The total cost of all the components that will be used in the production of goods but have not yet been used.

Days' Sales

A financial metric measuring the number of days it takes for a company to convert its inventory into sales.

Raw Materials Used

The basic substances in their natural, modified, or semi-processed state used as inputs for production.