The Profitability Index for a Volume Trade-Off Decision Involving Products

question 65

True/False

The profitability index for a volume trade-off decision involving products should be computed by dividing the unit contribution margin of a product by the selling price of the product.

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Definitions:

Economic Efficiency

A state where resources are allocated in the most beneficial way for society, maximizing productivity while minimizing waste and inefficiency.

Brand Loyalty

The tendency of consumers to continuously purchase products from the same brand instead of switching to competitors.

Entry Barriers

Obstacles that make it difficult for new competitors to enter a market or industry.

Substitute Products

Products that can serve as replacements for one another; when the price of one increases, the demand for the substitute is likely to increase.