Firms A, B, and C Operate in the Market for Computers

question 87

Multiple Choice

Firms A, B, and C operate in the market for computers. Each firm's product is popular in the market and distinct from what the other firms offer. The following table shows the prices of laptops from 2005 through 2007. Suppose this data was collected from a particular town, where people have a preference for firm C's laptops. If 2005 is used as the base year, which of the following statements will be true?

• A) The unweighted price index for 2007 understates the fall in the prices of laptops.
• B) The unweighted price index for 2006 overstates the fall in the prices of laptops.
• C) The unweighted price index should only use the data for laptops produced by firms A and B to provide an accurate picture of the change in prices.
• D) The unweighted price index will better reflect the change in prices over these years than a weighted price index.

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Definitions:

Net Cash

The amount of cash available after accounting for cash inflows and outflows, providing a clear picture of an entity's liquidity.

Investing Activities

Transactions and events that involve the acquisition or disposal of long-term assets and investments by a company.

Financing Activities

Transactions that result in changes in the size and composition of the equity and borrowings of a company.

Direct Method

A cash flow statement preparation approach that lists major classes of gross cash receipts and payments.