The More a Firm Invests in a New Production Technology,the

question 11

Multiple Choice

The more a firm invests in a new production technology,the lower its marginal costs.Which of the following scenarios involving this incumbent firm and a potential entrant makes the least economic sense?

• A)The incumbent overinvests to deter entry when this investment is observable to the entrant.
• B)The incumbent overinvests to deter entry when this investment is unobservable to the entrant.
• C)The incumbent underinvests to accommodate entry when this investment is observable and they compete in prices.
• D)The incumbent overinvests to accommodate entry when this investment is observable and they compete in quantities.

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Definitions:

Cost of Goods Manufactured Formula

A calculation used to determine the total production cost of goods completed during a specific period.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and considered a variable cost.

Factory Overhead

All indirect costs associated with manufacturing, such as indirect labor, maintenance, and utilities, that cannot be directly traced to specific units produced.

Manufacturing Costs

Expenses directly related to the production of goods, including direct materials, direct labor, and manufacturing overhead.