When Good X Is Produced, Some People Benefit

question 15

Multiple Choice

When good X is produced, some people benefit. A free-rider problem arises when

• A)the number of people who benefit is small and it is impossible to prevent anyone from benefiting.
• B)the number of beneficiaries is small and it is possible to prevent some people from benefiting.
• C)the number of beneficiaries is large and it is impossible to prevent anyone from benefiting.
• D)the number of beneficiaries is large and it is possible to prevent some people from benefiting.

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Definitions:

Unused Capacity

Represents the available production or service capacity that is not currently being used or is underutilized.

Predetermined Overhead Rate

An estimated rate used to assign manufacturing overhead costs to individual products or job orders, calculated before the actual costs are known.

Capacity

The maximum level of output that a company can sustain to produce goods or services.

Estimated Activity

An approximation of the level of operational or production activity expected in a certain period, typically used for budgeting and costing.