Use the Information Below to Answer the Following Questions

question 13

Multiple Choice

Use the information below to answer the following questions.
Fact 14.3.3
Suppose that Roots' marginal cost of a jacket is a constant $125.00 and the total fixed cost at one of its stores is $1,500 a day. This store sells 20 jackets a day, which is its profit-maximizing number of jackets. Then the stores nearby start to advertise their jackets. The Roots store now spends $2,000 a day advertising its jackets, and its profit-maximizing number of jackets sold jumps to 70 a day.
-Refer to Fact 14.3.3. If the nearby firms' advertising decreases the demand for Roots' jackets and makes the demand more elastic, the price of a Roots' jacket ________. If Roots' advertising increases the demand for Roots' jackets and makes the demand less elastic, the price of a Roots' jacket ________.

• A)falls; rises
• B)rises; rises
• C)rises; falls
• D)falls; falls
• E)does not change; does not change

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Definitions:

Process Costing

A method of costing used for homogenous products, where it calculates the cost of each process or stage of production.

FIFO Method

A method of inventory valuation where the oldest items are sold first, standing for "First In, First Out."

Conversion Costs

The combined costs of direct labor and manufacturing overhead used to convert raw materials into finished products.

FIFO Method

A method of inventory valuation that assumes the first items placed in inventory are the first sold, hence, the cost of the oldest inventory is used to determine the cost of goods sold.