Scenario 10-1 The Demand Curve for Gasoline Slopes Downward and the Supply

question 45

Multiple Choice

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000^th gallon of gasoline entails the following:
• a private cost of $3.10;
• a social cost of $3.55;
• a value to consumers of $3.70.
-Refer to Scenario 10-1. The production of the 1,000^th gallon of gasoline entails an

• A)external cost of $0.15.
• B)external cost of $0.45.
• C)external benefit of $0.15.
• D)external benefit of $0.45.

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Definitions:

Margin of Safety

The difference between actual or projected sales and the break-even point, measured to assess the risk of loss.

Sales

The total revenue earned from the sale of goods or services over a specific period of time.

Degree of Operating Leverage

The degree of operating leverage is a measure of how revenue growth translates into growth in operating income, indicating the sensitivity of operating income to changes in sales.

Net Operating Income

The profit derived from a company's core business operations, excluding expenses and revenues from non-operating activities.