Economic Models Must

question 62

Multiple Choice

Economic models must

• A) be completely realistic to be useful.
• B) include all relationships that exist in the relevant issue to be modeled.
• C) completely represent the real world.
• D) rely on the ceteris paribus assumption.

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Definitions:

Break-even

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

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.

Absorption Costing

An approach in accounting that comprises all costs of manufacturing, like direct materials, direct labor, and both types of manufacturing overheads (variable and fixed), in determining a product's cost.

Overproduction

The creation of more products or goods than are needed, leading to excess inventory and potential waste.