A Farmer Produces the Same Output in 2007 as in 2006

question 3

Multiple Choice

A farmer produces the same output in 2007 as in 2006. His input prices increase by 50 percent, but so does his product price. What can we conclude?

• A)The farmer is better off in 2007.
• B)The farmer was better off in 2006.
• C)The farmer is equally well off in 2007 as in 2006.
• D)We cannot tell whether the farmer is better off in 2007 or in 2006 without additional information.

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Definitions:

Machine-Hours

A measure of production time or capacity based on the number of hours machines are in operation.

Unused Capacity

The available production or service capability that is not being utilized by a business.

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to allocate manufacturing overhead costs to individual jobs or products based on a certain activity base, such as machine hours or labor hours.

Automated Lathe

A machine used in the manufacturing process that is controlled by a computer, improving precision and efficiency in producing parts.