Clarissa Kessler Operates a Store That Sells Recorded Music

question 117

Multiple Choice

Clarissa Kessler operates a store that sells recorded music. Her business suffered tremendously when a giant discount store chain opened a store in the area and is able to sell its products for less than Clarissa's wholesale cost. Is this evidence of illegal price discrimination on the part of the discount store chain?

• A) Yes, it is clearly a violation of the Robinson-Patman Act.
• B) No, because it can be argued that the discount store chain is justified in charging lower prices because it is a large-volume buyer and is able to purchase recorded music at a lower wholesale price than Clarissa.
• C) Yes, the discount store chain is engaging in predatory pricing.
• D) No, even if the price discrimination is based on differences in cost, the law states that it is not illegal.

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Definitions:

Acid-Test Ratio

A financial metric that measures a company's immediate liquidity by comparing its most liquid assets to its current liabilities.

Quick Ratio

A liquidity ratio that measures a company's ability to meet short-term obligations with its most liquid assets.

Gross Margin Ratio

A financial metric indicating the percentage of revenue that exceeds the cost of goods sold, illustrating how effectively a company uses labor and supplies in production.

Gross Profit

The difference between revenue and the cost of goods sold before deducting operating expenses, interest, and taxes.