Assume There Is a Decrease in the Market Demand for a Good

question 5

Multiple Choice

Assume there is a decrease in the market demand for a good sold by price-taking firms that are initially producing the profit-maximizing level of output.How will the market adjust over time?

• A)Firms will enter the market, causing price to rise until losses are eliminated.
• B)Firms will enter the market, causing price to fall until positive profits are eliminated.
• C)Firms will exit the market, causing price to rise until losses are eliminated.
• D)Firms will exit the market, causing price to fall until positive profits are eliminated.

---

Definitions:

Direct Labor Hours

The total time workers spend working directly on manufacturing a product or providing a service, which is often used in allocating manufacturing overhead.

Normal Capacity

The maximum production level or volume of activity that can be achieved under normal conditions by a business.

Normal Spoilage Costs

Costs associated with the expected amount of waste or inefficiency during a production process, considered a normal part of manufacturing.

Direct Materials Price Standard

The predetermined cost per unit of material, used in setting a budget and controlling costs.