Reference: Ref 10-2 (Figure: Market with External Cost) Suppose That

question 135

Multiple Choice

Reference: Ref 10-2 (Figure: Market with External Cost) Suppose that the figure displays the demand and supply curves for dry cleaning, a service that creates pollution. The external cost of dry cleaning is:

• A) P2.
• B) P1 - P0.
• C) P0.
• D) P2 - P0.

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Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales over the short term, such as rent and salaries.

Unit Contribution Margin

The difference between the selling price per unit and the variable cost per unit of a product.

Break-even Point

The level of production or sales at which total revenues equal total expenses, and the business makes neither a profit nor a loss.

Unit Contribution Margin

The difference between the selling price per unit and the variable cost per unit, indicating how much each unit sold contributes to covering fixed costs and generating profit.