If a Theory's Predictions Are Incorrect

question 20

Multiple Choice

If a theory's predictions are incorrect,

• A)then economists always reject it.
• B)then the data used was clearly faulty.
• C)then economists will likely reduce their confidence in the theory.
• D)then the model must be too simple.

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Definitions:

Monthly Fixed Expense

Expenses that do not change month to month, regardless of business activity, such as rent or salaries.

Contribution Margin Ratio

The proportion of sales revenue that exceeds variable costs, represented as a percentage.

Fixed Monthly Expenses

Costs that do not vary from month to month, such as rent, insurance, and salaries.

Unit Variable Cost

The cost associated with producing an additional unit of product, which includes materials, labor, and any other expenses that increase with each unit produced.