Market Failure Implies That the Market Mechanism

question 101

Multiple Choice

Market failure implies that the market mechanism

• A)Leads the economy to a point outside the production possibilities curve.
• B)Leads the economy to the wrong mix of output.
• C)Causes shortages or surpluses in the market.
• D)Causes government failure.

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Definitions:

Contribution Margin Ratio

The proportion of sales revenue that exceeds variable costs, typically expressed as a percentage, indicating how much contributes to covering fixed costs and generating profits.

Fixed Expenses

Costs that do not vary with the level of production or sales over a short period, such as rent, salaries, and insurance.

Break-Even

The point at which total costs and total revenues are equal, meaning there is no net loss or gain.

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in the cost of a product.