A Decrease in the Demand for a Product Will Cause

question 37

Multiple Choice

A decrease in the demand for a product will cause output of that product to

• A) increase and the demand for and prices of the resources used to produce the product to rise.
• B) decrease and both the demand for and prices of the resources used to produce the product to fall.
• C) decline; the demand for the resources used to produce the product will remain constant.
• D) increase; the price of resources used to produce the product will rise if their supply is elastic but fall if supply is inelastic.

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Definitions:

Absorption Costing

In this method of accounting, the price of manufacturing a product is calculated by summing the costs of direct materials, direct labor, and all manufacturing overheads, variable and fixed alike.

Fixed Manufacturing Overhead

The total of all costs related to manufacturing that do not change with the level of production, such as salaries of managers and rent of the factory.

Divisional Segment Margin

The profit margin for a specific division or segment of a company, calculated by subtracting direct and allocated expenses from segment revenues.

Net Operating Income

A measure of a company's profitability from its regular business operations, excluding non-operating income and expenses.