Answer: a. $14.17 /machine hour; $39,700
Explanation:
a. What was the standard rate per-machine hour if the standard fixed overhead cost of production is $41,100?
Standard Fixed Overhead Cost of Production = Standard Hours * Standard Rate
41,100 = 2,900 hours in April * Standard Rate
Standard Rate = 41,100/2,900
Standard Rate = 14.17 per machine hour
b. What is the budgeted fixed overhead amount if the actual fixed overhead is $43,100?
Budgeted Fixed Overhead= Actual Fixed overhead - Fixed overhead unfavourable variance
= 43,100 - $3,400 U in the month of April
= $39,700
In Dawg Stop's suit against Condiment Vendor, Inc., Dawg serves a written request for Condiment to admit the truth of matters relating to the trial. Condiment's admission in response is the equivalent of
Answer: an admission in court
Explanation:
An admission is a statement that is made when an individual admits that some facts are true before a trial begins. An admission is quite different from a confession.
In Dawg Stop's suit against Condiment Vendor, Inc., Dawg serves a written request for Condiment to admit the truth of matters relating to the trial. Condiment's admission in response is the equivalent of an admission in court.
Using a neoclassical model, what will the level of cyclical unemployment be when an economy is producing at potential GDP
Answer:
Zero
Explanation:
When an economy runs in its potential manner, and the GDP with maximum potential is received, then the income distribution of the concerned economy is optimal.
Further, as per neoclassical model, if the economy is producing at potential GDP, that is the supply chain is 100% efficient, then then level of cyclical unemployment shall be 0%.
The neoclassical model is based on the study of supply and demand of products in the market, with the help of which income distribution, distribution of goods, and various other outputs is computed in this model.
Thus, when an economy is producing at potential level then the income distribution shall also be potential, accordingly cyclical unemployment shall be zero.
In the month of March, Crane Salon services 590 clients at an average price of $120. During the month, fixed costs were $21,312 and variable costs were 60% of sales. (a) Determine the total contribution margin in dollars, the per unit contribution margin, and the contribution margin ratio. Contribution margin in dollars $ Contribution margin per unit $ Contribution margin ratio %
Answer:
Instructions are below.
Explanation:
Giving the following information:
Sales= 590 units
Selling price= $120
Unitary variable cost= 120*0.6= $72
Fixed costs= $21,312
First, we need to calculate the total contribution margin:
Total contribution margin= 590*(120 - 72)
Total contribution margin= $28,320
Now, the contribution margin per unit:
Unitary contribution margin= 120 - 72= $48
Finally, the contribution margin ratio:
contribution margin ratio= contribution margin / selling price
contribution margin ratio= 48/120
contribution margin ratio= 0.4
What is the usual rationale for governments to issue monopoly-promoting licenses to firms providing services such as trash collection
Answer: Economies of scale
Explanation:
Economies of scale are the cost advantages i.e the reduction in cost which a company benefits when there is efficiency in production. This is possible when there is a rise in production.
Therefore, the rationale for governments to issue monopoly-promoting licenses to firms providing services such as trash collection is due to economies of scale as this will help in reducing the cost and also allow one main company to do it more efficiently and effectively.
If nothing is stated to the contrary in terms of an auction, an auction is presumed to be ________.
Answer: with reserve
Explanation: If nothing is stated to the contrary in terms of an auction,an auction is presumed to be ________.
A)non-binding
B)a quasi-contract
C)without reserve
D)with reserve
E)an implied-in-law contract
An auction is presumed to be with reserve if nothing is stated to the contrary (in terms of an auction). What this means is that the seller is merely expressing or showing his intent to receive offers. In contrast, however, if an auction is without reserve, the lowest bid must be accepted by the auctioneer but if it is with reserve, the auctioneer may refuse to sell the item if he is not satisfied with the size of the highest bid.
An automated turning machine is the current constraint at Jordison Corporation. Three products use this constrained resource. Data concerning those products appear below:
LN JQ RQ
Selling price per unit $ 161.88 $ 350.41 $ 446.71
Variable cost per unit $ 116.12 $ 279.11 $ 338.71
Minutes on the constraint 2.60 4.60 7.50
Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized. (Round your intermediate calculations to 2 decimal places.)
Garrison 16e Rechecks 2017-09-13
A. LN, JQ, RQ
B. RQ, LN, JQ
C. RQ, JQ, LN
D. JQ, RQ, LN
Answer:A. LN, JQ, RQ
Explanation:
To know the current profitability, we need to determine the contribution margin unit by the minutes on the constraints .
a) For LN
Contribution by unit = Selling price per unit- Variable cost per unit
$ 161.88 -$116.12 = $45.76
Contribution by the minutes = Contribution by unit / Minutes on the constraint
= $45.76/ 2.60 = 17.60
B) For JQ
Contribution by unit = Selling price per unit- Variable cost per unit
$ 350.41 -$279.11 = $71.3
Contribution by the minutes = Contribution by unit / Minutes on the constraint
= $71.3/ 4.60 = 15.50
c) For RQ
Contribution by unit = Selling price per unit- Variable cost per unit
$ 446.71 -$338.71 = $108
Contribution by the minutes = Contribution by unit / Minutes on the constraint
= $108/ 7.50 = 14.40
In order of their current profitability from most profitable to least profitable, We have LN with 17.60, next JQ with 15.50 and the least RQ with 14.40
Which of the following statements are true for both gratuitous and testamentary transfers?
A) A unified credit of up to $1 million reduces the tax on any transfer?
B) An annual exclusion offsets any transfer up to $13,000.
C) An election can be made to spilt a transfer between spouses.
D) A charitable and marital deduction is allowed in computing the taxable transfers.
Answer: D. A charitable and marital deduction is allowed in computing the taxable transfers.
Explanation:
A gratuitous transfer is when a property is being given as a gift from a donor while testamentary transfer has to do with the transfer of a property to an individual based on the specification in a will.
The thing true to them is that a charitable and marital deduction is allowed in computing the taxable transfers.
All of the following statements regarding long-term liabilities are true except?
A. Liabilities not expected to be paid within the longer of one year or the company's operating cycle are reported as long-term liabilities.
B. Long-term liabilities include long-term notes payable, warranty liabilities, lease liabilities, and bonds payable.
C. Liabilities that do not have a fixed due date, but are payable on demand, are reported as long-term liabilities.
D. Long-term liabilities can be reported on the balance sheet in a single total or in multiple categories.
Answer:
C. Liabilities that do not have a fixed due date, but are payable on demand, are reported as long-term liabilities.
Explanation:
The liabilities are the responsibility with regard to the amount that is borrowed by someone from any other person or financial institution. It is a responsibility of a person to return the borrowed amount within the prescribed time along with the interest. Its time period is more than one year
Based on the given options, the option A, B and D are correct but option D is not correct as they have the specified date
Hence, the option C is correct
The custom order will incur no variable selling expenses. However, due to a special logo needing to be embossed on each ball, the direct materials expense will increase by $10 per ball. How will the profit of the company increase or decrease if they decide to accept the offer
Answer:
Hi, the question you have provided is missing data concerning the current costs of manufacturing the cost object and the price of the special offer amongst other items.
However, I will break down the principles and steps that are used to determine the effect on profit if firm decides to accept the offer.
Principle :
An Incremental analysis of Revenues and Costs is used to evaluate the acceptance of an offer. Only accept offers that results in incremental profit. Incremental Profit = Incremental Revenue - Incremental Costs.
Incremental Revenue
The special offer comes with a price that is different from the current prices used by the firm. Get this price and use it to find incremental revenue as a result of accepting the offer.
Incremental Costs
The special offer usually does not affect the fixed cost of manufacturing and selling the product. These are head office costs and are incurred whether or not the offer existed.
Consider Fixed costs when and only when they arise due to acceptance of the offer.
Only the Variable Cost Manufacturing and Selling Costs for the units to be supplied are considered in this analysis. Also account for any increases of variable costs and variable cost items
A company raised $50,000 in cash by taking a one-year loan of $10,000 and a 5-year loan of $40,000. Which of the following is the correct journal entry to record this transaction?
A. Debit short-term debt $40,000; debit retained earnings $10,000; credit cash $50,000
B. Debit short-term debt $50,000; credit cash $50,000
C. Debit cash $50,000; credit long-term debt $50,000
D. Debit cash $50,000; credit short-term debt $10,000; credit long-term debt $40,000
Answer:
D. Debit cash $50,000; credit short-term debt $10,000; credit long-term debt $40,000
Explanation:
The journal entry for the given transaction is shown below:
Cash Dr $50,000
To Short term debt $10,000
To Long term debt $40,000
(Being the raised of loan is recorded)
For recording this we debited the cash as it increased the assets and credited the short term debt and long term debt as it also increased the liabilities
hence, the correct option is D.
For movement along the demand curve, from an old position to a new one, the price effect is quantifiable as
Answer:
This question is incomplete, the options are missing. The options are the following:
A) The old price times the change in quantity.
B) The old price times the new quantity.
C) The new price times the change in quantity.
D) The old quantity times the change in price.
And the correct answer is the option D: The old quantity times the change in price.
Explanation:
To begin with, the name of "Price Effect" refers to a concept known in economics as the situation where a consumer is affected by the change in the price that a good he plans to buy staying everything else constant. This effect is quantifiable as the old quantity times the change in price when we see the representation in a graphic due to the fact that when the demand curve moves the new position will be established by that new price that have affected the consumer given the same old quantity.
Lomack Company's bonds have a 8-year maturity, a 8% coupon, paid semiannually, and a par value of $1,000. The market interest rate is 5%, with semiannual compounding.What is the bond's price?A bond has an annual coupon rate of 3.5%, a face value of $1,000, a price of $1,125.1, and matures in 10 year.What is the bond's YTM?
Answer:
Bond Price = $1,196
YTM = 2.1000% or 0.0210
Explanation:
Given the maturity years = 8 years
Coupon rate = 8%
Par value = $1000
Market interest rate = 5%
Since there is semi annual compounding payment so the number of payments, N = 8 * 2 = 16
Half year interest rate = I/Y = 5/2 = 2.5
Annuity payment or PMT = 0.08 × 1,000/2 = 40
FV = 1,000
CPT PV
Present value, PV = -1,195.82504
Price = $1,196
PMT = 1,000 × 0.035 = 35
Future value, FV = 1,000
Present value, PV = -1,125.1
N = 10
CPT I/Y
Now, I/Y = 2.1000
YTM = 2.1000% or 0.0210
Of the small businesses in the distribution industry, nearly three-quarters of them are involved in:________.a. Wholesalingb. Purchasingc. Serviced. Retailing
Answer:
d. Retailing
Explanation:
Retailing is selling of a product to the last consumer known for the product generally. As this is the last stage of a distribution channel maximum people are involved.
Further retailers requires the least investment in the distribution chain as compared to other processes.
Whole sellers require huge amount also that the purchaser requires huge amount.
Retailing business is the last step of the distribution channel and maximum people are doing this business.
Learning curves are useful for measuring work improvement for repetitive, simple jobs requiring short times to complete.
a) true
b) false
1) A firm sells 1,000 units per week. Suppose the average variable cost is $40, and the average cost is $95.
In the short run, the break-even price is _______. In the long run, the break-even price is _______.
2) Suppose the firm charges a price of $110 per unit.
In the short run, should they continue to produce or shut down?
In the long run, should they continue to produce or shut down?
Answer:
q , 2. m,n (9,9)
Yes it will.produced
In the short run, the break-even price can be calculated by adding the average variable cost to the average cost.
So the short-run break-even price would be $40 + $95 = $135 per unit. This means that the firm needs to charge at least $135 per unit to cover all its costs and avoid losses in the short run.
In the long run, the break-even price is determined by the average cost alone. So the long-run break-even price would be $95 per unit. This implies that the firm needs to charge at least $95 per unit to cover all its costs and achieve zero economic profit in the long run.
In the short run, if the firm charges $110 per unit and the break-even price is $135, it means that the firm is not covering all its costs and is incurring a loss of $25 per unit. In this scenario, it would be advisable for the firm to shut down in the short run, as continuing to produce and sell at a price lower than the break-even price would result in further losses.
In the long run, the firm should evaluate its options based on its ability to adjust its cost structure. If the firm can find ways to reduce its average cost below $110 per unit, then it may be profitable to continue producing. However, if the firm is unable to lower its costs sufficiently, it may be more prudent to shut down in the long run to avoid sustained losses. The decision will depend on the firm's ability to adapt and improve its cost efficiency.
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Each vase requires one pound of clay in its manufacture. Victoria Corporation has a policy that the inventory of clay at the end of each month needs to be equal to % of the production needs for the following month. At the beginning of January, pounds of clay were in inventory. How many pounds of clay would Victoria Corporation need to purchase in February (Month 2)?
Answer:
2,840 pounds
Explanation:
The question is incomplete:
Victoria Corporation manufactures quality vases. Budgeted sales and production data for the vases are as follows:
Month 1 budgeted unit sales 2,000
Month 2 budgeted unit sales 2,500
Month 3 budgeted unit sales 3,200
Month 1 budgeted unit production 2,400
Month 2 budgeted unit production 2,700
Month 3 budgeted unit production 3,400
Raw material required for each finished unit (in pounds) 1
The ending inventory for each month should be equal to 20% of the next month's production needs. Each vase requires one pound of clay in its manufacture. Victoria Corporation has a policy that the inventory of clay at the end of each month needs to be equal to 20% of the production needs for the following month. At the beginning of January, 480 pounds of clay were in inventory. How many pounds of clay would Victoria Corporation need to purchase in February (Month 2)?
Materials budget
January February
Units to be produced 2,400 2,700
Clay per unit 1 1
Total clay needed for px 2,400 2,700
+ desired ending inv. 540 680
Total materials required 2,940 3,380
- beginning inventory -480 -540
Purchase requirements 2,460 2,840
Answer:
The answer is oviously 2840 pounds"In a Real Estate Limited Partnership, the general partner refinances an existing $5,000,000 mortgage on a $10,000,000 property to the original amount of $8,000,000. The interest rate on both mortgages is the same. The purpose of this action by the General Partner is to:"
Answer:
Increase interest deductions for the limited partners.
Explanation:
In the given scenario the general partner refinances an existing $5,000,000 mortgage on a $10,000,000 property to the original amount of $8,000,000. The interest rate on both mortgages is the same.
Refinancing a loan means that more money is disbursed to the borrower before the termination of the loan.
When a loan is refinanced at the same interest rate the borrower pays more interest.
For example if the mortgage remains at $5,000,000 the interest paid on this principal will be lower.
When the loan is refinanced to $8,000,000 at the same Interest rate the interest paid will be higher because principal is higher.
So the general partner aims to increase the amount of interest paid.
Creating economic value for shareholders while also creating social value is known as creating _____.
Answer:
Shareholder capitalism, is the right answer.
Explanation:
Shareholder capitalism is the right answer because in shareholder capitalism the main purpose is to change the value of the company. The motive of the firm is to engage all the company’s stakeholders in the process of economic value creation. However, during the value creation, a company not only serves its shareholders but it serves all the stakeholders as well. Thus in this way, it creates social values.
CAPM says that portfolio returns are best explained by: Group of answer choices Systematic risk Specific risk Economic factors Diversification
Answer:
Systematic risk
Explanation:
According to CAPM,
the expected return = risk free rate + ( beta x market premium)
Beta measures systemic risk
Systemic risk is risk inherent in a market and cannot be eliminated by diversifying portfolio. It is also known as market risk.
A real estate developer is offering identical houses for sale for $350,000 each, and has 20 willing customers. The developer is considering lowering the price to $300,000, since at that price there would be an additional 3 customers willing to purchase houses. What would be the developer’s change in revenue from lowering the price in this way?
Answer:
If the company lowers the selling price, the revenues will decrease by $100,000.
Explanation:
Giving the following information:
The developer is considering lowering the price to $300,000, since at that price there would be an additional 3 customers willing to purchase houses.
Actual revenue= 350,000*20= $7,000,000
New revenue= 300,000*23= $690,000
If the company lowers the selling price, the revenues will decrease by $100,000.
An online gambling site offers a first prize of $50000 and two second prizes of $20000 each for registered users when they place a bet. A random bet will be selected over a 24hour period. Two million bets are received in the contest. Find the expected winnings if you can place one registered bet of $1 in the given period.
Answer:
−0.955
Explanation:
Given the following :
Worth of placing a registered bet = $1
1st price = $50,000
2nd price = $20,000
Total bets received = 2,000,000
Net winning :
Winning - worth of placing a registered bet
Ist price = $50,000 - $1 = $49,999
2nd price = $20,000 - $1 = $19,999
Amount lost = - $1
number of losers = 2,000,000 - 3 = 1,999,997
Probability :
Probability = (required outcome / Total possible outcomes)
Number of 1st price winners = 1
Number of second price winners = 2
P(1st price) = 1 / 2,000,000
P(2nd price) = 2/ 2,000,000 = 1/ 1,000,000
Therefore ;
Net winning (x) - - 49,999 - 19,999 - - - (-1)
P(winning) p(x) - - 1/2mill - - 1/1mill-- 1999997/2mill
Expected winnings = sum of [(x) * p(x)]
= ($49,999 * 0.0000005) + (19,999 * 0.000001) +(-1 * 0.9999985)
= 0.0249995 + 0.019999 − 0.9999985
= 0.0449985 - 0.9999985
= - 0.955
Any value disclosed above operating income in the income statement would be:_____.A) After-Tax.B) Pre-Tax.C) Per-share.D) None of the above.
Answer:
B) Pre-Tax
Explanation:
The income statement refers to the statement in which the all expenses are deducted from the revenue so that the operating income could come i.e. EBIT
For the value that disclosed above the operating income would be pre tax as after the EBIT, the income tax expense, the interest expense should be deducted to find out the Profit after tax
So in this situation, the option B is correct
Quamma Corporation makes a product that has the following costs: Per Unit Per Year Direct materials $ 18.50 Direct labor $ 16.10 Variable manufacturing overhead $ 3.40 Fixed manufacturing overhead $ 826,000 Variable selling and administrative expenses $ 5.10 Fixed selling and administrative expenses $ 574,000 The company uses the absorption costing approach to cost-plus pricing as described in the text. The pricing calculations are based on budgeted production and sales of 35,000 units per year. The company has invested $740,000 in this product and expects a return on investment of 19%. Required: a. Compute the markup on absorption cost. (Round your intermediate and final answer to 2 decimal places.) b. Compute the selling price of the product using the absorption costing approach. (Round your intermediate and final answer to 2 decimal places.)
Answer:
a. $2,156,000
b. $409,640
c. $2,565,640
Explanation:
First Calculate the Product Cost
Hint : Include Both Variable and Manufacturing Cost - Because Quamma Corporation uses absorption costing approach. Non manufacturing costs are not included in product cost.
Calculation of Total Product Cost
Direct materials ($ 18.50 × 35,000) $647,500
Direct labor ($ 16.10 × 35,000) $563,500
Variable manufacturing overhead ($ 3.40 × 35,000) $119,000
Fixed manufacturing overhead $826,000
Total Product Cost $2,156,000
Markup on absorption cost
Markup on absorption cost ($2,156,000 × 19%) = $409,640
Calculation of Selling Price
Total Product Cost $2,156,000
Add Markup on absorption cost $409,640
Selling Price $2,565,640
Harry needed some extra money. In charge of purchasing for his company he did the following acts:
A1. He made a deal with a supplier that the salesman would give Harry directly 10% for all the purchases Harry ordered from the salesman's company.
A2. He knew that his secretary was committing a fraud by over-stating her travel expenses that the company paid her back for so Harry told her to pay him $100 per month for him not to reveal what he knew.
A3 . Harry created fake company that he pretended sold product to the company and he made orders from this fake company which he then had his company pay. The money went to an account the Harry controlled.
For each number above,
Q1 -describe the names given to the crimes committed.
Q2 - Other than through whistleblowing, how might these frauds have been detected?
Q3 - Which frauds could have been prevented and for those describe what that would have been the method of prevention and for those that most likely could not have been prevented, why?
Answer:
Q1. A1) kickback. A2) employee theft and bribery crime. A3) white-collar crime.
Explanation:
Q2. This crime could have been detected by the individual he had dealings with the first time-the Salesman.
Q3. His dealings with his secretary was a crime that could have been prevented if she had refused to give in to demands. However, the kickback fraud most likely could not have been prevented as the organization has limited knowledge of the illegal deal.
Which of the following is considered a capital asset for federal income tax purpose?
a) Accounts receivable acquired in the course of your business
b) Land used in your business
c) Furniture and equipment used in your business
d) Stock in trade
e) Automobile held for personal use
Answer:
b) Land used in your business
Explanation:
For tax purposes the IRS classifies capital assets as those that have a productive life of more than one year and is not normally sold during the course of a business's operations.
Capital assets are a type of production cost, they are used in the production process to generate revenue.
They are expensed over the useful life of the asset in the form of depreciation.
Land is an example of capital assets for the purpose of federal income tax.
It provides the site of production and is not an item that is sold in the short run. Rather it is used over several years.
Zurasky Corporation is considering two alternatives: A and B. Costs associated with the alternatives are listed below: Alternative A Alternative B Materials costs $38,000 $48,000 Processing costs $44,000 $44,000 Equipment rental $10,600 $28,300 Occupancy costs $19,300 $29,600 What is the differential cost of Alternative B over Alternative A, including all of the relevant costs
Answer:
$38,000
Explanation:
Calculation for the differential cost of Alternative B over Alternative A,
Using this formula
Differential costs= Alternative A - Alternative B
Let plug in the formula
Alternative A Alternative B Differential Costs
Materials costs $38,000- $48,000=$10,000
Processing costs 44,000-44,000=0
Equipment rental 10,600- 28,300= 17,700
Occupancy costs 19,300-29,600=10,300
Total expenses$111,900- $149,900=$38,000
Therefore the differential cost will be $38,000
After completing medical school, Dr. Kim had $200,000 in student loan debt. Be fulfilled an obligation as part of his student loan contract to work as a doctor for four years on an Indian reservation. At the end of the four years, all his student loan debt was cancelled. Dr. Kim will need to report what amount of income on his tax return in the year the debt was forgiven
Answer:
$50,000
Explanation:
The initial balance of Dr. Kim's student loan debt was $200,000 and it was completely repaid after working for 4 years, therefore, Dr. Kim must report annual income of $200,000 / 4 = $50,000 during each of the 4 years that he worked on an Indian reservation. He didn't actually receive any money, but since his liabilities decrease, he must report it as income.
On December 31, 2017, Ivanhoe Company had $1,313,000 of short-term debt in the form of notes payable due February 2, 2018. On January 21, 2018, the company issued 23,200 shares of its common stock for $45 per share, receiving $1,044,000 proceeds after brokerage fees and other costs of issuance. On February 2, 2018, the proceeds from the stock sale, supplemented by an additional $269,000 cash, are used to liquidate the $1,313,000 debt. The December 31, 2017, balance sheet is issued on February 23, 2018. Show how the $1,211,000 of short-term debt should be presented on the December 31, 2017, balance sheet.
Answer:
They should be reported in 2 different parts, first under current liabilities as:
Notes payable $269,000Then under long term liabilities:
Notes payable expected to be refinanced $1,044,000Explanation:
the total short term notes payable on December 31 = $1,313,000
$1,044,000 were paid off by issuing common stocks, so that portion of the debt must be reported as notes payable expected to be refinanced (or refinanced debt)the remaining $269,000 which were paid using cash reserves must be reported as current notes payableThe Bakery produces organic bread that is sold by the loaf. Each loaf requires 1/2 of a pound of flour. The bakery pays $2.50 per pound of the organic flour used in its loaves. The bakery expects to produce the following number of loaves in each of the upcoming four months:______.
Data Table
July 1,500 loaves
August 1,880 loaves
September 1,680 loaves
October 1,560 loaves
The bakery has a policy that it will have 20% of the following month's flour needs on hand at the end of each month. At the end of June, there were 150 pounds of flour on hand. Prepare the direct materials budget for the third quarter, with a column for each month and for the quarter.
Begin the direct materials by determining the total quantity needed, then complete the budget.
July August September Quarter
Units to be produced
Multiply by: Pounds of flour needed per unit
Quantity needed (Ibs) for production
Plus: Desired ending inventory of direct materials
Total quantity (lbs) needed
Answer:
The Bakery
Direct materials budget
For the third quarter of year 202x
July August September Quarter
Budgeted production units 1,500 1,880 1,680 5,600
Materials required per unit 0.5 0.5 0.5 0.5
Materials needed for Px 750 940 840 2,530
+ Desired ending inventory 188 168 156 156
Total materials required 938 1,108 996 2,686
- Beginning inventory -150 -188 -168 -150
Units to be purchased 788 920 828 2,536
Cost per unit $2.50 $2.50 $2.50 $2.50
Total cost materials costs $1,970 $2,300 $2,070 $6,340
If the price of Yoo-hoo is $2 in New York and $1 in St. Petersburg, Russia (after converting the rubles to dollars), you might expect: Group of answer choices
Answer: A) people to buy Yoo-hoo in St. Petersburg and sell it in New York until the price was the same in each country
Explanation:
As the Yoo-hoo is cheaper in St. Petersberg than in New York, this presents an arbitrage opportunity to buy cheap and sell higher. People will therefore buy from St.Petersberg at the price of $1 and then sell it in New York for $2 thereby making a 100% profit.
Once this happens more and more people will start doing this which would lead to an increase in demand for St. Peterberg Yoo-Hoos. According to the Law of Demand, when demand rises, the price will rise as well so the price in St. Petersberg will keep rising till it gets to the same amount in New York thereby dissuading people from buying to take advantage of the opportunity.