Assume the Wool Industry Is Perfectly Competitive

question 59

Multiple Choice

Assume the wool industry is perfectly competitive. Why is it difficult for a wool producer to make excess profits in the long run?

• A) the fact that wool producers are ʺprice takersʺ
• B) the assumption that wool producers in the industry do not ʺdifferentiateʺ their products
• C) the fact that the demand curve facing each wool producer is perfectly elastic
• D) There is free entry into the wool industry.

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Definitions:

Activity Level

A measure of the volume of production or operations, often influencing variable costs and capacity planning.

Fixed Manufacturing Overhead

The consistent, non-variable costs incurred during the manufacturing process, not directly tied to production levels.

Volume Variance

The difference between the budgeted and actual volume of production, affecting fixed costs allocation.

Machine-Hours

A unit of measure representing the operation time of a machine, often used in allocating manufacturing costs based on machine usage.