Which of the Following Statements Is CORRECT

question 30

Multiple Choice

Which of the following statements is CORRECT?

• A) If a firm is found guilty of cannibalization in a court of law,then it is judged to have taken unfair advantage of its competitors.Thus,cannibalization is dealt with by society through the antitrust laws.
• B) If a firm is found guilty of cannibalization in a court of law,then it is judged to have taken unfair advantage of its customers.Thus,cannibalization is dealt with by society through the antitrust laws.
• C) If cannibalization exists,then the cash flows associated with the project must be increased to offset these effects.Otherwise,the calculated NPV will be biased downward.
• D) If cannibalization is determined to exist,then this means that the calculated NPV if cannibalization is considered will be higher than the NPV if this effect is not recognized.
• E) Cannibalization,as described in the text,is a type of externality that is not against the law,and any harm it causes is done to the firm itself.

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Definitions:

Variable Costs

Expenses that change in proportion to the activity of a business, such as costs for raw materials or production.

Fixed Costs

Costs that do not vary with the level of output or production, such as rent, salaries, and insurance premiums.

Sales Volume

The total quantity of products or services sold by a company within a specific period, often used as a measure of business activity.

Break Even

The point at which total costs and total revenues are equal, resulting in no net loss or gain.