Question

Tariffs, subsidies and warnings on cigarette packages are examples of which characteristics associated with positive NPV projects?
a) economies of scale

b) access to distribution channels

c) favorable or unfavorable government policies

d) cost advantages

E) product differentiation

Answer 1

Tariffs, subsidies and warnings on cigarette packages are examples of which characteristics associated with positive NPV projects?
a) economies of scale: These refer to cost reduction due to large scale production, such as bulk discounts and faster time of production due to mechanization. So this option is incorrect

b) access to distribution channels: Distribution channels are the chain of entities who take goods and services from the manufacturer and make them available to the end user. Access to the same is not related to tariffs, subsidies and warnings on cigarette packages. So this option is in correct

c) favorable or unfavorable government policies: Tariffs are import taxes. These are imposed to reduce imports. Subsidies are given to compensate the producer for lower retail or market price. Warnings on Cigarette packages are in public interest. Therefore all these are favorable or unfavorable government policies. So this option is correct.

d) cost advantages: Cost advantages implies why a firm is able to make a higher profit in comparison to others due to lower costs. So this option is incorrect

E) product differentiation: Product differentiation is a component of the monopolistic competition wherein there are a large number of sellers each selling a slightly different product which are close but not perfect substitutes. So this option is incorrect.