Suppose That a Normal Rate of Return in the Economy

question 106

Multiple Choice

Suppose that a normal rate of return in the economy is 10% and the rate of return being earned by firms in a competitive industry equals exactly 10%. Which of the following is a correct prediction based on this information?

• A) New firms will want to enter this industry, as the existing firms are earning an economic profit.
• B) Firms already in the industry will want to expand to try to increase their rate of return.
• C) Firms in the industry will not undertake any investment projects other than to replace depreciating capital stock.
• D) The industry size will contract.

Understand and apply the concept of predetermined overhead rates in the calculation of applied manufacturing overhead.

Identify and calculate underapplied or overapplied manufacturing overhead and its implications.

Understand the distinction between job-order costing and process costing systems.

Analyze T-account transactions to determine ending balances in various accounts such as Work in Process, Finished Goods, and Manufacturing Overhead.

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Definitions:

Systematic Risk

The inherent risk associated with the entire market or market segment that cannot be eliminated through diversification.

Variance

A statistical measurement that represents the dispersion of a dataset relative to its mean, used to quantify the spread of data points.

Regression

A statistical method for estimating the relationships among variables, often used for prediction and forecasting in finance.

Correlation Coefficient

A statistical measure that calculates the strength of the relationship between two variables, ranging from -1 to 1, where 1 indicates a perfect positive correlation and -1 indicates a perfect negative correlation.