Tombstones Are Produced in a Monopolistic Competitive Market

question 87

Multiple Choice

Tombstones are produced in a monopolistic competitive market. One producer, Rolling Stones, sells 20 tombstones a week at a price of $500 each. Its average total cost is $600. From this information, we can tell:

• A) new tombstone firms will want to enter.
• B) this producer is losing $2,000 a week.
• C) this producer is making an economic profit of $400.
• D) this producer should increase production.

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Definitions:

Cost Pool

A grouping of individual costs, typically by department or service center, from which cost allocations are made later.

Machine Hours

A measure of production time, quantifying the total hours a machine is operated within a specific period.

Overhead Absorption Rate

The method of allocating overhead costs to specific units of production, based on certain criteria like direct labor hours or machine hours.