A Local Fast-Food Restaurant Mails Out Coupons for a Free

question 47

Multiple Choice

A local fast-food restaurant mails out coupons for a free sandwich to every home in the community.The opportunity cost of redeeming the sandwich for someone who was on a diet might be:

• A) lost wages due to spending time in a long line instead of eating a Healthy Choice meal in your office.
• B) not eating because you are on a "get fit for the summer" diet plan.
• C) eating a "Tough Man's Burger," which is one of your favorite fast food options.
• D) There was no opportunity cost for the sandwich because it was free.

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Definitions:

Avoidable Cost

An expense that can be eliminated if a particular decision is made, not incurred if a specific activity is discontinued.

Fixed Production Cost

The portion of total production costs that does not change with the level of output, including costs such as rent, salaries, and insurance.

Vertical Integration

The involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales, and after-sales service.

Economies of Scale

The cost advantage that arises with increased output of a product, as the fixed costs are spread over more units of production.