If the Minimum Efficient Scale of a Firm Is Small

question 310

Multiple Choice

If the minimum efficient scale of a firm is small relative to the demand for the good, then

• A) many small firms can compete in the market.
• B) several large firms will enter the market thereby reducing competition.
• C) there will be no economic profits for any small firms, so no new firms will ever enter the market.
• D) the firms already in the market have lower average total cost than any new firm entering the market.

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs, both direct and indirect, in the cost of a product.

Markup

The amount added to the cost of merchandise to arrive at the selling price, usually expressed as a percentage of the cost.

Selling Price

The amount of money a buyer pays to acquire a product or service from a seller.

Absorption Costing

An accounting method that includes all production costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of a product.