A Toy Store Does Not Pay for Its Purchases of Toys

question 75

Multiple Choice

A toy store does not pay for its purchases of toys from manufacturers until one month later.Suppose that in October it starts to stock up in anticipation of a surge in toy sales in December,when is it most likely to have a negative operating cash flow?

• A) It should never have a negative operating cash flow as long as its business is profitable.
• B) In October because this is when it starts to stock up.
• C) In November because this is when it will need to pay for the increased inventory.
• D) In December because this is when the toys will start to move off the shelves.

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Definitions:

Supply Curve

A graphical representation of the relationship between the price of a good and the quantity supplied.

Marginal Revenue Product

The extra income obtained by using an additional unit of a production input while keeping other inputs unchanged.

Labor Market

The supply and demand for labor, where employees offer their services and employers seek to hire, influencing wages and employment levels.

Equilibrium

A state in a market where supply equals demand, and there is no incentive for prices to change, resulting in market stability.