Suppose External Costs Are Present in a Market Which Results

question 30

Multiple Choice

Suppose external costs are present in a market which results in the actual market price of $50 and market output of 800 units. How does this outcome compare to the efficient, ideal equilibrium?

• A) The efficient outcome would be greater than 800 units.
• B) The efficient outcome would be less than 800 units.
• C) The efficient outcome would also be 800 units.
• D) The efficient price would be less than $50.

---

Definitions:

Direct Materials

Raw materials that are directly used in the manufacturing of a product and are easily traceable to it.

Variable Manufacturing Overhead

Overhead costs that fluctuate with changes in production volume, such as utility expenses and machine maintenance.

Variable Overhead

Indirect production costs that change in relation to the level of production activity, such as utilities for a manufacturing facility.

Rate Variance

The difference between the actual rate and a predetermined or standard rate.