Assume You Graph a Project's Net Present Value Given Various

question 21

Multiple Choice

Assume you graph a project's net present value given various sales quantities. Which one of the following is correct regarding the resulting function?

• A) The steepness of the function relates to the project's degree of operating leverage.
• B) The steeper the function, the less sensitive the project is to changes in the sales quantity.
• C) The resulting function will be a hyperbole.
• D) The resulting function will include only positive values.
• E) The slope of the function measures the sensitivity of the net present value to a change in sales quantity.

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Definitions:

Profit Maximizing

The process of adjusting production and sale strategies to achieve the highest possible profits.

Economic Profits

Profits calculated by subtracting both explicit and implicit costs from total revenues; represents the extra amount over the payment needed to keep a resource in its current use.

P = ATC

An equation indicating the price level (P) at which the average total cost (ATC) of production is exactly met, often representing a break-even point for firms in competitive markets.

Pure Monopolist

A single seller in a market with no close substitutes for the product, giving the seller significant control over prices and output levels.