Which of the Following Best Explains Why the Elasticity of Supply

question 13

Multiple Choice

Which of the following best explains why the elasticity of supply of labor for an individual with a Cobb-Douglas utility function (for consumption and leisure) is zero?

• A)Income and substitution effects are precisely offsetting.
• B)The elasticity of substitution of leisure for consumption is zero.
• C)Leisure is an inferior good.
• D)Consumption is subject to diminishing marginal utility.

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Definitions:

Overhead Rate

The total of indirect costs of production compared to a base activity measure, like labor hours, used to assign costs to products.

Manufacturing Overhead

These are indirect factory-related costs that are incurred when producing a product, such as utility costs, depreciation, and salaries of supervisors.

Direct Labor-Hours

Direct labor-hours refer to the total hours worked by employees directly involved in the production process.

Traditional Costing

An accounting method that applies indirect costs to products based on a predetermined overhead rate.