If the Marginal Social Benefit of a City's Sewage System

question 24

Multiple Choice

If the marginal social benefit of a city's sewage system is less than the marginal social cost, then the city will achieve an efficient use of resources if it

• A) increases the sewage charge that the residents pay.
• B) increases the capacity of the sewage system.
• C) does not change the capacity of the sewage system.
• D) decreases the capacity of the sewage system.

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Definitions:

Fixed Manufacturing Overhead

The set costs associated with operating a manufacturing facility that do not vary with the level of production, including salaries of managers and depreciation of equipment.

Unit Product Cost

The total cost (both fixed and variable) associated with producing a single unit of a product.

Additional Contribution Margin

The increase in contribution margin generated by an additional unit of sales, reflecting the revenue minus variable costs for that unit.

Purchasing Decision

The process of evaluating and choosing from among alternatives to buy products or services that best meet the criteria of the purchaser.