A ?Rm That Faces a Kinked Demand Curve Will

question 97

Multiple Choice

A ?rm that faces a kinked demand curve will:

• A) establish its optimal output at the level where marginal cost is greater than marginal revenue.
• B) frequently engage in price wars with its competitors.
• C) face a horizontal marginal revenue curve.
• D) lose customers if it raises its prices.

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Definitions:

Variable Manufacturing Overhead

Costs in the manufacturing process that vary with the level of production output, such as utilities or indirect materials, but do not directly correlate to specific units of production.

Variable Overhead Rate Variance

The difference between the actual variable overhead incurred and the standard cost allocated, based on the actual activity level.

Variable Overhead Standards

The predetermined costs associated with variable overheads that are expected to be incurred under normal operating conditions.

Direct Labor-hours

The total hours worked directly on manufacturing a product or providing a service, used as a basis for allocating labor costs in product costing.