If the Purchasing Power of the Dollar Is Greater Than

question 88

Multiple Choice

If the purchasing power of the dollar is greater than the purchasing power of the euro,purchasing power parity predicts that the exchange rate will

• A)increase if the exchange rate is greater than 1 euro per dollar.
• B)decrease if the exchange rate is less than 1 euro per dollar.
• C)be equal to the relative purchasing power across the currencies in the long run.
• D)not fluctuate and stay constant in the long run.

Understand the relationship between total revenue, total profit, and output levels.

Recognize the impact of market entry and exit on industry prices and profits in the long run.

Differentiate between accounting profit and economic profit.

Describe the characteristics of a perfectly competitive market.

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Definitions:

Variable Expense

Costs that change in proportion to the level of production or sales activity.

Contribution Margin Ratio

The percentage of each sales dollar that remains after variable costs have been deducted, indicating how much contributes to fixed costs and profits.

Cost-Volume-Profit Graph

A visual representation that shows the relationship between cost, volume of production, and profit, to analyze how changes in variables affect profits.

Total Revenue

The overall amount of money generated by a business from its activities, such as sales of goods or services, before any expenses are subtracted.