Oliver Inc

question 109

Multiple Choice

Oliver Inc. currently has a contribution margin of $25 on its only product. Oliver Inc. is considering spending $8,000 more on advertising this year to generate an increase in sales of 5,000 units. How will this change affect its operating income?

• A)It will increase operating income by $117,000.
• B)It will increase operating income by $133,000.
• C)It will decrease operating income by $8,000.
• D)It will increase operating income by $125,000.

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Definitions:

Economic Losses

Situations where total costs exceed total revenues, indicating that resources may be better utilized elsewhere.

Average Variable Cost

The total variable costs (costs that change with the level of output) of production divided by the quantity of output produced.

Short Run

A time period in which at least one input is fixed and cannot be changed by the firm, affecting its production decisions.

Purely Competitive Market

Another term for a perfectly competitive market, emphasizing its features like a large number of small firms and identical products.