The Risk of Being the Lower-Cost Producer of a Good

question 121

Multiple Choice

The risk of being the lower-cost producer of a good or service is:

• A)your business will fail more quickly.
• B)your business will generate excess cash and will incur higher taxes.
• C)your business will have problems keeping up with demand.
• D)customers will abandon your business when someone else offers a lower price.

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Definitions:

Long-Run Supply Curve

A graphical representation showing the quantities of a good or service that a firm is willing and able to supply at different prices over a period where all inputs can be varied.

Constant-Cost Industry

Constant-Cost Industry refers to an industry in which the input prices do not change as industry output changes, leading to a flat supply curve.

Long-Run Equilibrium

A state where all factors of production and inputs can be adjusted by firms, and no economic forces are inducing firms to change their output or production levels.

Average Total Cost

The cost per unit is determined by dividing the overall production costs, which include both fixed and variable expenses, by the total units manufactured.