When Following U

question 18

Multiple Choice

When following U.S. GAAP, the lower-of-cost-or-market rule for inventory requires a firm to report ________.

• A) the inventory at the higher amount of cost or market on the balance sheet
• B) the difference between the cost basis and the market-based measure of inventory as a gain on the income statement
• C) the inventory at cost if the market value of inventory is higher than its cost basis
• D) the inventory at cost if the market value of inventory is lower than its cost basis

---

Definitions:

Marginal Private Cost

The cost incurred by a firm or individual resulting from producing one more unit of a good, excluding externalities or effects on third parties.

External Benefits

External benefits refer to the positive effects or advantages that a product or activity imparts on individuals or society who are not directly involved in the production or consumption of the good.

Network Externalities

The effect on a user of a product or service that results from an increase in the number of other users of the same or compatible products or services.

Natural Monopolies

Market conditions where a single firm can supply a good or service more efficiently than any competitor due to economies of scale, hence dominating the market.