Friday LOA Test

Question 1

PRICE ELASTICITY LOA

Answer 1

1. If there are increased substitutes
2. ⬆️ price elasticity (more price elastic)
3. Customers less loyal
4. Therefore, if they increase price = significant fall in demand
5. Pressure to keep prices low
6. Leading to reduced revenue
7. Decreasing profit margins
8. Reduced total equity

Question 2

PRICE INELASTIC LOA

Answer 2

1. Positive publicity = stronger brand image
2. Differentiate from competitors
3. Customers more loyal
4. Products more price inelastic
5. Increase prices without significant fall in demand
6. Increased revenue
7. Increase profit margins
8. Increase total equity

Question 3

PURCHASING EOS

Answer 3

1. Increase sales
2. Increased sales volume
3. Increased orders to suppliers due to needing more raw material
4. Potential discount for bulk buying
5. Lower unit variable costs
6. Increase profit margins
7. Increase total equity

Question 4

MARKETING EOS

Answer 4

1. Increase sales
2. Increase sales volume
3. Meaning the fixed costs of marketing e.g advertising
4. Can be spread over more units
5. Lower unit fixed costs
6. Advertising = more affordable and can do more of it
7. Increase brand awareness
8. Increase sales
9. Increase profit margins

Question 5

BALANCE SHEET - LIQUIDITY

Answer 5

1. Increased cash outflows
2. = lower net cash flow
3. Lower cash reserves
4. Decrease current assets
5. Putting business at risk
6. May not be able to keep up with payments for current liabilities
7. Sell non-current assets
8. Disrupts business operations

Question 6

INCOME STATEMENT

Answer 6

1. Increase sales
2. Increased gross profit
3. Increase operating profit
4. Increase net profit
5. Which can be retained
6. And invested in…