If an Economic Action Generates More Costs Than Benefits, the Action

question 524

Multiple Choice

If an economic action generates more costs than benefits, the action

• A) by definition increases the nation's economic welfare.
• B) should not be undertaken from an efficiency standpoint.
• C) should be undertaken from an efficiency standpoint.
• D) is desirable from a public welfare standpoint, even though many individuals will be harmed.

---

Definitions:

Common Fixed Expenses

Common fixed expenses refer to the overhead costs not directly linked to production or sales volume, shared across different departments or product lines.

Absorption Costing

An approach in accounting where the cost of a product is determined by including direct materials, direct labor, and all manufacturing overhead costs, whether variable or fixed.

Unit Product Cost

The total cost to produce one unit of product, including direct materials, direct labor, and allocated overhead.

Contribution Margin Ratio

A financial metric that shows what percentage of sales revenue is not consumed by variable costs and therefore contributes to covering fixed costs.