The Free Rider Problem Refers to a Situation in Which

question 205

Multiple Choice

The free rider problem refers to a situation in which

• A)people consume a pure public good without payment, even though the good may not be produced if no one chooses to pay.
• B)the marginal cost of allowing additional consumers to consume a public good is zero.
• C)high income individuals subsidize the production of goods, such as education, that make society better off.
• D)markets fail to allocate resources efficiently when benefits outweigh costs.

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Definitions:

Fixed Overhead

Costs that do not change with the level of production activity, such as rent, salaries, and insurance.

Operating Income

Earnings from a company's core business operations, excluding expenses and revenues from non-operational activities like investment income.

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in the cost of a product.

Manufacturing Margin

The difference between the sales revenue of manufactured goods and the direct costs associated with producing them.