Boenisch Corporation Produces and Sells a Single Product with the Following

question 30

Multiple Choice

Boenisch Corporation produces and sells a single product with the following characteristics: The company is currently selling 8,000 units per month. Fixed expenses are $406,000 per month. Consider each of the following questions independently. This question is to be considered independently of all other questions relating to Boenisch Corporation. Refer to the original data when answering this question.
The marketing manager would like to cut the selling price by $12 and increase the advertising budget by $30,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,800 units. What should be the overall effect on the company's monthly net operating income of this change?

• A)decrease of $25,200
• B)increase of $254,400
• C)increase of $70,800
• D)decrease of $70,800

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Definitions:

Multiplier

A factor that quantifies the additional economic impact of spending; it measures by how much a change in investment or government spending will affect the total economic output.

MPC (Marginal Propensity To Consume)

The proportion of additional income that an individual consumes rather than saving.

MPC (Marginal Propensity To Consume)

The ratio of the change in consumption to the change in income, indicating how income changes affect spending.

Multiplier

An economic factor that quantifies the effect of investment on income, showing how much economic activity is generated by a given increase in spending.