A Technological Improvement Lowers the Cost of Producing Coffee

question 109

Multiple Choice

A technological improvement lowers the cost of producing coffee. At the same time, consumers' preferences for coffee increase. The equilibrium price of coffee will

• A) rise.
• B) fall.
• C) remain the same.
• D) rise, fall, or stay the same, depending on the relative size of the shifts in the demand and supply curves.

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Definitions:

Cost of Goods Manufactured

The total cost incurred by a company to produce goods in a specific period, including materials, labor, and overhead costs.

Manufacturing Overhead

This encompasses costs related to the manufacturing process that are not directly associated with the products being manufactured, such as equipment depreciation and factory rent, essential for understanding total production costs.

Indirect Production Costs

Expenses related to the production process that cannot be directly linked to a specific product, often including maintenance, supervision, and factory utilities.

Direct Material

Raw materials that are directly traceable to the manufacturing of a specific product and constitute a significant portion of the product's cost.