What should an entrepreneur do first when raw-material prices suddenly increase?
Answer and explanation
Correct answer: Assess the impact on cost and price
A raw-material price increase changes production cost, but its actual effect depends on inventory, quantity, alternatives, demand, and competitor prices. The entrepreneur should first calculate the impact and then examine suppliers, efficiency, product changes, or a justified price revision. Immediate shutdown or arbitrary price doubling may create greater problems. Therefore, A is the proper first step.
Frequently asked questions
What is the correct answer to this question?
Assess the impact on cost and price
Why is this the correct answer?
A raw-material price increase changes production cost, but its actual effect depends on inventory, quantity, alternatives, demand, and competitor prices. The entrepreneur should first calculate the impact and then examine suppliers, efficiency, product changes, or a justified price revision. Immediate shutdown or arbitrary price doubling may create greater problems. Therefore, A is the proper first step.
Which subject and chapter does this question cover?
This is a Class 12 Business Studies question. Chapter: Financial Management. Topic: Working capital.
