Assume the Price of Widgets Increases by 22 Percent and the Quantity

question 139

Multiple Choice

Assume the price of widgets increases by 22 percent and the quantity supplied increases by 27 percent as a result. The elasticity of supply coefficient is:

• A)​greater than 1, implying that widgets are normal goods.
• B)​less than 1, implying that widgets are inferior goods.
• C)​greater than 1, implying that supply is elastic.
• D)​greater than 1, implying that supply is inelastic.

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Definitions:

Variable Manufacturing Overhead

Indirect manufacturing costs that vary with the level of production, such as utilities for the production area.

Fixed Manufacturing Overhead

Expenses that do not vary with the level of production, such as rent, salaries, and depreciation of manufacturing facilities.

Variable Distribution Costs

Expenses related to the delivery or distribution of a product that vary in proportion to the volume of units sold.

Contribution Margin

The amount remaining from sales revenue after variable production costs and variable expenses have been deducted; used to cover fixed costs and to generate profit.