Business Inventories Increase When fiRms Produce

question 195

Multiple Choice

Business inventories increase when firms produce

• A) more than they sell, and the inventory increase is added to GDP.
• B) less than they sell, and the inventory increase is added to GDP.
• C) more than they sell, and the inventory increase is subtracted from GDP.
• D) less than they sell, and the inventory increase is subtracted from GDP.

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Definitions:

Marginal Cost

The increase or decrease in the total cost that arises from producing one additional unit of a particular good.

Average Cost

The total cost divided by the number of goods produced, reflecting the cost per unit of output.

Cost Function

A mathematical relationship that describes how production costs change with variations in the quantity of output produced.

Competitive Firm

A company that operates in a market with many buyers and sellers, where no single entity has the power to dictate prices for goods and services.