In a Market That Lacks Sufficient Competition

question 157

Multiple Choice

In a market that lacks sufficient competition,

• A) output will generally be less than the output that is ideal from the standpoint of economic efficiency.
• B) output will generally be greater than the output that is ideal from the standpoint of economic efficiency.
• C) price will generally be less than the price that would result if the market was competitive.
• D) profit rates will generally be so low that government subsidies will be necessary to ensure that the firms remain in business.

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs (both fixed and variable) in the cost of a product.

Contribution Margin

The profit remaining after variable costs have been subtracted from revenue, indicating how much contributes to covering fixed costs and generating profit.

Variable Cost

Variable costs are expenses that change in proportion to the activity of a business, such as materials and labor costs.

Fixed Manufacturing Overhead

Consists of production costs that do not change with the volume of manufacturing activity, such as rent for the manufacturing facilities or salaries of plant managers.