Cost-Saving Developments,e

question 59

Multiple Choice

Cost-saving developments,e.g. ,a new production procedure that saves two steps,introduced by a price-taking firm in a competitive market lead to

• A) entry by new firms.
• B) positive economic profit for new firms.
• C) positive economic profit for a few firms for a short time.
• D) higher consumer prices in the long run.
• E) a leftward shift of the supply curve.

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Definitions:

Direct Materials

Direct materials are raw materials that are directly used in the manufacturing process of a product and are a major component of the cost of goods sold.

Predetermined Overhead Rate

is calculated by dividing estimated manufacturing overhead cost by an allocation base, used to assign overhead costs to products or services.

Direct Labor-Hours

A measure of the amount of time workers spend on a specific task or production of a certain quantity of goods.

Manufacturing Overhead

All indirect costs associated with the production process, including utilities, rent for the production facility, and salaries of production supervisors.