TTV Corporation's Managers Estimate That a 50% Increase in Price

question 104

Multiple Choice

TTV Corporation's managers estimate that a 50% increase in price would cause an 80% reduction in the quantity of product sold. Total fixed costs for the product are $5,000 and total variable costs are $4,000, based on production of 400 units. The following values may be useful: ln (0.2) = -1.609 ln (1.5) = 0.405
Ln (0.5) = -0.693 ln (4,000) = 8.294
Ln (0.8) = -0.223 ln (5,000) = 8.517
TTV's price elasticity of demand is:

• A)-3.973
• B)-0.252
• C)+0.322
• D)+3.108

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Definitions:

Operating Leverage

This is a measure of how revenue growth translates into growth in operating income, showing the proportion of fixed costs in a company's cost structure.

Financial Leverage

Financial leverage refers to the use of borrowed funds to increase the potential return on investment, amplifying both potential gains and losses.

Technological Advantages

Benefits a company gains by utilizing superior technology compared to its competitors, potentially leading to higher efficiency and profit margins.

Equity Account

An account that represents the ownership interest of shareholders in a corporation, reflected in common and preferred shares.