The Ability of Price-Taker Firms to Freely Expand or Contract

question 64

Multiple Choice

The ability of price-taker firms to freely expand or contract their businesses and to enter or exit the market means that

• A) prices will always be high enough to generate positive economic profit.
• B) resources that would be more valuable elsewhere will be trapped, unproductively, in a particular industry.
• C) resource owners cannot move their resources to other areas where they would be more highly valued.
• D) resources that would be more valuable elsewhere will not be trapped, unproductively, in a particular industry.

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Definitions:

Materials Quantity Variance

A measure of the difference between the actual quantity of materials used in production and the expected quantity, multiplied by the standard cost per unit.

Materials Price Variance

The deviation from the standard to the real price of materials, calculated by multiplying this difference by the amount of materials bought.

Variable Overhead

Overhead costs that vary directly with the level of production or activity, such as electricity or material handling costs.

Direct Material

Raw materials that can be directly traced to the production of a specific product and are a significant component of its cost.