A firm incurs $400 to manufacture a television. In the market, customers are willing to pay a maximum of $600 for the television priced at $500. The difference of $200 ($600 minus $400) is the A) consumer surplus. B) total return to shareholders. C) customer lifetime value. D) economic value created.

Question

Quinn Arellano

Business

11 February, 08:01

A firm incurs $400 to manufacture a television. In the market, customers are willing to pay a maximum of $600 for the television priced at $500. The difference of $200 ($600 minus $400) is the A) consumer surplus. B) total return to shareholders. C) customer lifetime value. D) economic value created.

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Answers (1)

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Duncan · Answer 1

D. Economic value created.

Explanation:

The reason is that the economic value created is the difference between the price the customer is willing to pay and the cost that the product actually costs to the firm.

Following is the formula for calculation of economic value created:

Economic Value Created = Value customer willing to pay - Cost of product

Here the television costs $400 to the firm and the customer is willing to pay $600 for the television. So by putting the values we have:

Economic Value Created = $600 - $400 = $200

So the correct option is option D.