Data Concerning Sotero Corporation's Single Product Appear Below: the Company

question 171

Multiple Choice

Data concerning Sotero Corporation's single product appear below: The company is currently selling 5,000 units per month. Fixed expenses are $319,000 per month. Consider each of the following questions independently.
-This question is to be considered independently of all other questions relating to Sotero Corporation. Refer to the original data when answering this question.
The marketing manager would like to cut the selling price by $7 and increase the advertising budget by $20,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What should be the overall effect on the company's monthly net operating income of this change?

• A) increase of $46,500
• B) decrease of $18,500
• C) decrease of $16,500
• D) increase of $18,500

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Definitions:

Elastic Demand

A situation where the quantity demanded of a product changes significantly in response to a change in price.

Substitutes

Products or services that can be used in place of each other; an increase in the price of one leads to an increase in demand for the other.

Available

Referring to resources or goods that are obtainable and can be utilized.

Perfectly Price Elastic

This refers to a situation where the demand for a product or service changes infinitely with a very small change in price.