If Government Forced a Firm to Charge a Price Equal

question 67

Multiple Choice

If government forced a firm to charge a price equal to marginal cost in a situation where there are scale economies,

• A)new firms would enter the industry.
• B)the firm would be forced to go bankrupt.
• C)positive economic profit would grow even larger.
• D)marginal cost would exceed average cost.

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Definitions:

Conversion Costs

The combined costs of direct labor and manufacturing overheads, representing the costs to convert materials into finished goods.

Weighted-Average Method

A cost accounting method that averages the costs of all goods available for sale during the period, regardless of when they were acquired or produced.

First-In, First-Out Method

A method of inventory valuation where the oldest inventory items are recorded as sold first, with the most recent costs remaining in inventory.

Conversion Costs

The combination of labor and manufacturing overhead costs that are incurred in turning raw materials into finished products.