The Elasticity of Substitution Is a Measure of

question 24

Multiple Choice

The elasticity of substitution is a measure of

• A) the percentage change in the demand for a good that results from a given percentage change in its price
• B) how easy it is to substitute one input for another in producing a given level of output
• C) how much output decreases when inputs are increased by a fixed multiple λ

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Definitions:

Special Order

A customer request for a product or service that is not normally offered by the business, often requiring unique production or procurement efforts.

Selling Price

The amount of money charged for a product or service, or the sum of the cost plus profit.

Variable Costs

Expenses that change in proportion to the production output or sales amount.

Target Costing

A pricing strategy in which the selling price of a product is set first, and then the target cost is determined by subtracting a desired profit margin from the selling price.