Dirth Company Sells Only One Product at a Regular Price

question 68

Multiple Choice

Dirth Company sells only one product at a regular price of £7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are £30,000. Management has decided to decrease the selling price to £6.00 in hopes of increasing its volume of sales. What is the contribution margin ratio when the selling price is reduced to £6 per unit?

• A) 25%
• B) 40%
• C) 75%
• D) 60%

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Definitions:

Monopolistic Competition

A market structure characterized by many firms selling products that are similar but not identical, allowing for some degree of market power and price setting.

Monopolistic Competition

An industry structure where several entities sell products that are similar in nature but not completely the same, thus giving them a slight edge in market power.

Differentiate

To recognize or ascertain what makes someone or something unique or distinct, especially in the context of products or services in the marketplace.

Industry Market Structure

The organization of a market based on the number of firms in the market, the nature of competition, and the extent of product differentiation.