In a Competitive Market, If the Production Process Involves an External

question 94

Multiple Choice

In a competitive market, if the production process involves an external benefit, the market will

• A) produce the economically efficient outcome.
• B) result in a market price that is higher than the efficient one.
• C) result in a market price that is lower than the efficient one.
• D) result in too much of the good being produced compared to the ideal efficient outcome.

---

Definitions:

Annual Depreciation Tax Shield

This represents the tax savings a company achieves due to depreciation expense, calculated as the depreciation times the tax rate.

Tax Rate

The percentage at which an individual or corporation is taxed, which can vary based on income level, jurisdiction, and type of tax.

Straight-Line Depreciation

A method for portioning out the cost of a hard asset over its service life in consistent yearly values.

Net Advantage to Leasing

The total financial benefit that a company receives from leasing assets rather than purchasing them, taking into account all costs and savings.