A Chemical-Producing Firm Is Located Just Upstream from an Electric

question 39

Multiple Choice

A chemical-producing firm is located just upstream from an electric power plant.Instead of the more expensive procedure of burying its wastes,the chemical-producing firm begins dumping its waste into the stream.This causes increased variable costs for the power plant,which uses water from the stream to cool its turbines.The chemical producer's dumping of waste into the stream causes

• A)The MC of the chemical firm to shift downward and the MC of the power company to shift upward.
• B)The MC of the chemical firm to shift upward and the MC of the power company to shift downward.
• C)Only the MC of the chemical firm to shift upward.

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Definitions:

Break-Even Point

The point at which total costs and total revenue are equal, resulting in no net gain or loss.

Variable Cost

A cost that changes in proportion to the level of output or activity.

Variable Costs

Costs that vary directly with the level of production or output, such as materials and labor.

Contribution Margin

The selling price per unit, minus the variable cost per unit, used to determine the profitability of products or services.