A Perfectly Competitive Market Is in Equilibrium and Then Demand

question 38

Multiple Choice

A perfectly competitive market is in equilibrium and then demand decreases.The decrease in demand means the market price will ________ and eventually there will be ________.

• A) rise; entry by new firms
• B) fall; exit by existing firms
• C) fall; entry by new firms
• D) rise; exit by existing firms
• E) fall; neither entry nor exit because the market is perfectly competitive

---

Definitions:

Overhead Cost Driver

A factor that causes the cost of overheads to change, such as machine hours or labor hours.

Predetermined Overhead Rate

A rate estimated before a period begins, used to allocate overhead costs to products or job orders based on a chosen activity base.

Allocation Base

A measure of activity such as direct labor-hours or machine-hours that is used to assign costs to cost objects.

Manufacturing Overhead Cost

All manufacturing costs that are not directly associated with the production of a product, including indirect materials, indirect labor, and other expenses.