When the Cost of a Resource Is Sunk,then the Dual

question 20

Multiple Choice

When the cost of a resource is sunk,then the dual price can be interpreted as the

• A)minimum amount the firm should be willing to pay for one additional unit of the resource.
• B)maximum amount the firm should be willing to pay for one additional unit of the resource.
• C)minimum amount the firm should be willing to pay for multiple additional units of the resource.
• D)maximum amount the firm should be willing to pay for multiple additional units of the resource.

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Definitions:

Direct Materials

Raw materials used in the production of goods that are directly associated with the finished product.

Incremental Analysis

The process of identifying the financial data that changes under alternative courses of action.

Fixed Overhead

Regular, ongoing costs that are not affected by the level of production or sales, such as rent, salaries, and insurance.

Direct Materials

Raw materials directly used in the manufacturing of a product, which are easily traceable to the finished product.