FIGURE 16- 1 -Refer to Figure 16- 1. Suppose That the Perfectly Competitive

question 86

Multiple Choice

FIGURE 16- 1
-Refer to Figure 16- 1. Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A. If the social marginal costs and social marginal benefits are represented by MC0 and MB1, respectively, then there exists

• A) an external benefit.
• B) an external cost.
• C) a social cost that exceeds the private cost.
• D) no external benefits or costs.
• E) an external benefit and an external cost.

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Definitions:

Direct Labor

The wages or expenses incurred for labor that is directly involved in the manufacturing of a product.

Process

A series of actions or steps taken in order to achieve a particular end in business or manufacturing.

Job Order

A work instruction or order for producing a specific quantity of a product or service according to customer specifications.

Conversion Cost

The combined costs of direct labor and manufacturing overheads associated with converting raw materials into finished products.