When Managers Talk About Cost Behavior, They Are Referring to the Way

question 169

Essay

When managers talk about cost behavior, they are referring to the way in which total costs change in response to changes of the level of activity.List the four common cost behavior patterns that serve as the foundation for cost-volume-profit analysis and give an example of each.

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Definitions:

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded, typically downward sloping.

Giffen Good

A type of inferior good for which demand increases as its price increases, contrary to the typical law of demand.

Slutsky Substitution Effect

A concept in economics that describes how a change in the price of a good affects consumption patterns, separating the effect into income and substitution effects.

Indifference Curve

A graph that shows different combinations of two goods among which a consumer is indifferent, implying the same level of utility for each combination.