Scenario 5-1 Suppose That When the Average College Student's Income Is $10,000

question 24

Multiple Choice

Scenario 5-1
Suppose that when the average college student's income is $10,000 per year,the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80.Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie,the quantity demanded of Sue's Subs increases from 80 to 100.Suppose also that when the average student's income increases to $12,000 per year,the annual quantity demanded of Patty's Pizza increases from 50 to 60.
-Refer to Scenario 5-1.What can you deduce about the type of good Patty's Pizza is and about the relationship between Patty's Pizza and Sue's Subs?

• A)Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes.
• B)Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are complements.
• C)Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are substitutes.
• D)Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are complements.

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Definitions:

Variable Manuf. Overhead

Variable manufacturing overhead refers to the indirect costs that change with the level of production, such as utilities for the manufacturing plant.

Labour Efficiency Variance

The difference between the actual hours worked and the standard hours expected to produce a certain number of units, valued at the standard labor rate.

Direct Labour Cost

The wages and salaries paid to workers who are directly involved in the production of goods or services.

Direct Material Costs

The costs of raw materials that can be directly traced to the production of a specific product.