When Demand Exceeds Capacity, All of the Following Are Reasonable

question 192

Multiple Choice

When demand exceeds capacity, all of the following are reasonable options for the firm except

• A) operating overtime hours to meet the demand.
• B) starting a second or third shift.
• C) subcontracting part of the work to other producers.
• D) turning away some long-time customers.
• E) expanding the capacity of the current facility.

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Definitions:

Factor Prices

The prices of inputs used in the production of goods or services, such as labor, capital, and raw materials.

Marginal Cost

The cost added by producing one additional unit of a product or service.

Marginal Cost Curve

A graphical representation showing how the cost of producing one additional unit of a good changes as production volume changes.

Total Fixed Costs

Expenses that do not change with the level of output or sales, such as rent, salaries, and insurance premiums.