Consider a Remote Village with a Limited,freely Available Water Supply

question 44

Multiple Choice

Consider a remote village with a limited,freely available water supply and no government intervention in the allocation of water.Economic theory predicts that the water will be

• A)allocated efficiently because users will tend to use the water until marginal cost and marginal benefit are both equal to zero.
• B)overexploited because users will tend to use the water until the marginal cost of providing the water is zero.
• C)allocated efficiently because users will tend to use the water until the supply and demand are in equilibrium.
• D)overexploited because users will tend to use the water until their marginal benefit is zero.
• E)allocated efficiently because users will tend to use the water as though it were a public good.

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Definitions:

Absorption Costing

An accounting method that assigns all manufacturing costs, including both fixed and variable, to products, fully capturing the cost of production.

Fixed Manufacturing Overhead

Regular, unchanged costs incurred during the manufacturing process, regardless of the level of output.

Variable Costing

A costing method that only includes variable production costs in product costs, excluding fixed manufacturing overhead.

Net Operating Income

The profit generated from a company's day-to-day operations, excluding investment and financing transactions.