Two Soft Drinks Sit Side-By-Side in a Grocery Store: a Six-Pack

question 332

Multiple Choice

Two soft drinks sit side-by-side in a grocery store: A six-pack of Coca-Cola (a brand name) sells for $3.00,while a six-pack of Uncle Don's cola (not a brand name) sells for $1.50.Even defenders of brand names would have to admit that

• A) no rational consumer would spend twice as much for Coca-Cola as he would for Uncle Don's cola.
• B) the side-by-side presence of these two colas conveys no useful information to consumers.
• C) Coca-Cola has no incentive to maintain the quality of its product just because of the Coca-Cola brand name.
• D) None of the above is correct.

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Definitions:

Estimated Premium Claims

The projected claims against an insurance provider that determines premium rates for policyholders.

Modified Cash Basis

A method of accounting that combines elements of both cash and accrual accounting, recording most transactions on a cash basis, but also incorporating the accrual basis for significant items.

Warranty Expense

Costs associated with the obligation to repair or replace defective products sold to customers, recognized as a liability.

Estimated Liability

A probable future outflow of resources, arising from past transactions or events, the amount of which is not certain.