Jarvis Foods Produces a Gourmet Condiment Which Sells for $10

question 99

Multiple Choice

Jarvis Foods produces a gourmet condiment which sells for $10.00 per unit. Variable costs are $7.50 per unit, and fixed costs are $18,000 per month. Jarvis is currently selling 8,000 units per month. If Jarvis reduces the selling price down to $9.00 per unit, they believe volume will rise to 13,000 units per month. How would that affect its operating income?

• A) Operating income will go up by $6,000.
• B) Operating income will go down by $1,600.
• C) Operating income will go down by $500.
• D) Operating income will go up by $2,000.

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Definitions:

Velocity of Money

The rate at which money circulates or is exchanged in an economy, used to indicate the economic activity level.

Price Level

The average of current prices across the entire spectrum of goods and services produced in the economy, serving as an indicator of inflation.

Equation of Exchange

An economic formula representing the relationship between the money supply, the velocity of money, the price level, and the number of transactions in an economy.

Money Supply

The entire stock of money assets in an economy at a specified period.