Concentration Ratios May Be Inaccurate Indicators of the Degree of Monopoly

question 353

Multiple Choice

Concentration ratios may be inaccurate indicators of the degree of monopoly power in an industry because

• A)they include interindustry competition.
• B)foreign competition is not considered.
• C)they are only calculated for local and regional markets.
• D)they do not distinguish between normal and economic profit.

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Definitions:

Variable Costing

A method of accounting that incorporates only the costs that vary with production into the cost of products, leaving out any fixed manufacturing overhead.

Absorption Costing

A fiscal recording method that consolidates every cost involved in manufacturing, which includes the price of direct materials, payments for direct labor, and total overhead costs, whether stable or fluctuating, into the cost allocated to a product.

Variable Costing

A costing method that incluonly direct materials, direct labor, and variable manufacturing overhead in product costs, excluding fixed manufacturing overhead.

Total Fixed Manufacturing Overhead

The sum of all costs related to manufacturing a product that do not change with the level of production, such as salaries of permanent staff and rent.