If Demand for a Firm's Products Suddenly Increases So That

question 73

Multiple Choice

If demand for a firm's products suddenly increases so that inventory decreases while sales increase, how will the firm's needs for net working capital react?

• A) Net working capital would increase.
• B) Net working capital would decrease.
• C) There would be no change in net working capital.
• D) Net working capital would first decrease, then increase slowly over time.

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Definitions:

Music Industry

The sector of the economy focused on the production, distribution, and promotion of music and related services.

Industry Concentration

A measurement of the extent to which a small number of firms dominate the total output, sales, or employment of an industry.

R&D Expenditures

Research and Development Expenditures pertain to the funds allocated by businesses or governments towards the research and development of new products, services, or technologies.

Inverted-U Theory

The idea that, other things equal, R&D expenditures as a percentage of sales rise with industry concentration, reach a peak at a four-firm concentration ratio of about 50 percent, and then fall as the ratio further increases.