The Rule for Putting Peak Versus Non-Peak Capacity into Place

question 1

Multiple Choice

The rule for putting peak versus non-peak capacity into place is to buy peak capacity when

• A)Cp < Cnp.
• B)Cp > Cnp.
• C)Cnp < Cp.
• D)Cnp > Cp.

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Definitions:

Total Variable Cost

The sum of expenses that vary directly with the level of production or output, such as materials and labor.

Total Fixed Cost

The sum of all costs required to produce a good or service that do not change with the level of output.

Marginal Revenue (MR)

The additional revenue that a firm receives from selling one more unit of a good or service.

Marginal Cost (MC)

The additional cost required to produce one additional unit of a product or service, a crucial factor in economic decision-making and pricing strategies.