All Economic Models Must Involve Simplifications Because

question 47

Multiple Choice

All economic models must involve simplifications because

• A)economists would be unable to command high salaries if their models were so simple that anyone could understand them
• B)human behavior is very erratic and unpredictable
• C)reality is too complex to understand in its entirety, so we must reduce it to a level that we can understand
• D)they always try to duplicate all possible information and cover all possible variables that might influence decision making
• E)we must rely on value judgments and ignore reality

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Definitions:

Conversion Costs

The sum of labor and overhead expenses incurred in the process of transforming raw materials into finished goods.

Weighted-Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory based on the average cost of all units available for sale during the period.

Assembly Department

The section of a manufacturing plant where components are put together to form a finished product.

Conversion Costs

Costs related to turning raw materials into finished goods, typically including direct labor and manufacturing overhead.