Assume That Odds of a New Computer Requiring Any Type

question 168

Multiple Choice

Assume that odds of a new computer requiring any type of service in the first two years are less than 1 in 10,000,and the average cost of any computer service calls is only $120.However,Karen pays $300 for a 2-year service contract on her new computer.She explains that her peace of mind is well worth the cost of the contract.In this case,Karen's decision to purchase the service agreement appears to be based primarily on

• A) expected value.
• B) subjective utility.
• C) subjective probability.
• D) noncompensatory factors.

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Definitions:

Fixed Cost

Expenses that do not change with the level of output or sales in the short term, such as rent or salaries.

Manufacturing Overhead

Every supplementary cost related to the manufacturing process, apart from direct materials and labor expenses.

Manufacturing Overhead

All indirect costs associated with manufacturing, such as maintenance, utilities, and management salaries, not directly tied to the production of goods.

Prime Cost

The combined direct costs of raw materials and labor that are directly attributable to the production of a product.