Setting a Production Quota Does Not Always Achieve the Efficient

question 77

Multiple Choice

Setting a production quota does not always achieve the efficient use of a common resource because

• A)marginal cost differs for each producer and it is in everyone's self-interest to cheat and produce more than the assigned quota.
• B)the marginal private benefit from a production quota is zero.
• C)marginal cost differs for each producer and the marginal social benefit from a production quota is zero.
• D)a production quota does not totally eliminate the problem of free-ridership of a common resource.
• E)the Coase theorem is invalid in this market.

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Definitions:

Direct Labor-Hours

A measure of the total time worked by employees directly involved in the manufacturing process or providing services, often used to allocate manufacturing overhead.

Traditional Costing

Traditional Costing is a method of costing that allocates manufacturing overhead costs to products based on the volume of production resources consumed, such as labor hours or machine hours.

Overhead Assigned

The allocation of indirect costs to a particular production process or activity.

Direct Labor-Hours

A measure of the total hours worked by employees directly involved in the manufacturing process.