Compared to Ideal Economic Efficiency, When the Production of a Good

question 21

Multiple Choice

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will result in an output that is too:

• A) large and a price that is too high.
• B) large and a price that is too low.
• C) small and a price that is too high.
• D) small and a price that is too low.

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Definitions:

Operating Leverage

A measure of how sensitive a company's operating income is to a change in its sales volume, highlighting the impact of fixed costs.

Automobile Manufacturing

The industry involved in the design, development, production, marketing, and selling of motor vehicles.

Sensitivity Analysis

A procedure for examining the repercussions that different magnitudes of an independent variable have on a dependent variable, within the context of predetermined assumptions.

Cash Break-Even

The amount of revenue necessary to cover all cash operating expenses, ignoring non-cash costs.