Use a Graph to Demonstrate the Circumstances That Would Prevail

question 35

Essay

Use a graph to demonstrate the circumstances that would prevail in a competitive market where firms are earning economic profits. Can this scenario be maintained in the long run? Explain your answer.

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Definitions:

Direct Materials Purchases Variance

The difference between the actual cost of materials purchased and the expected cost at standard prices.

Direct Labor-Hours

An alternative term for direct labor-hour, referring to the labor time spent by employees directly on manufacturing a product.

Materials Price Variance

The difference between the actual cost of materials purchased and the expected (standard) cost times the actual quantity of materials used.

Direct Materials Purchases Variance

The difference between the budgeted cost of materials that should have been purchased for the production volume and the actual cost of materials purchased.