Which Statement Is True Concerning the Decision Rule on Whether

question 162

Multiple Choice

Which statement is true concerning the decision rule on whether to make or buy?

• A) The company should buy if the cost of buying is less than the cost of producing.
• B) The company should buy if the incremental revenue exceeds the incremental costs.
• C) The company should buy as long as total revenue exceeds present revenues.
• D) The company should buy assuming no additional fixed costs are incurred.

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Definitions:

Profit-maximizing Level

The point at which a firm achieves the highest possible profit, where marginal revenue equals marginal cost.

Average Variable Cost

The total variable costs (costs that change with the level of output) of a firm divided by the quantity of output produced.

Total Variable Costs

The sum of all costs that vary with the level of output, including costs for raw materials, labor, and other expenses that change with production volume.

Purely Competitive

A purely competitive market is characterized by many buyers and sellers, homogeneous products, and no barriers to entry or exit, leading to price taking behavior by firms.