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One of the Dangers of Allocating Common Fixed Costs to a Product

question 9

True/False

One of the dangers of allocating common fixed costs to a product line is that such allocations can make the line appear less profitable than it really is.


Definitions:

Marginal Cost

The hike in overall cost that comes with the assembly of an extra unit of a product or service.

Elasticity

A measure in economics to show how much the quantity demanded or supplied of a good responds to a change in price or other factors.

Marginal Cost

The cost incurred by producing an additional unit of a product or service.

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to a change in one of its determinants, such as its price.

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