The Diagram Below Shows the Market Demand Curve and the Cost

question 48

Multiple Choice

The diagram below shows the market demand curve and the cost curves for a single firm. FIGURE 12- 6
-Refer to Figure 12- 6. Suppose this firm is being regulated using a policy of marginal- cost pricing. In this case,

• A) allocative efficiency is achieved because price equals marginal cost.
• B) allocative efficiency is achieved because profits are maximized.
• C) the result is allocatively inefficient because the firm is suffering losses.
• D) the result is allocatively inefficient because the marginal cost curve lies below the ATC curve.
• E) the result is allocatively inefficient because the firm is earning profits.

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Definitions:

Inventory Account

An account in the ledger that tracks the value of a company's inventory through various stages of production, from raw materials to finished goods.

Credit Terms

Conditions under which credit is extended by a lender to a borrower, including payment periods, interest rates, and penalties for late payment.

Perpetual Inventory System

An accounting method that continuously updates inventory records after each purchase or sale.

Discount Period

The timeframe within which a payment can be made at a discounted rate, often used in sales transactions to encourage early payment.