Consider the Following Costs and Decision-Making Situations

question 85

Multiple Choice

Consider the following costs and decision-making situations:
I. The cost of existing inventory, in a keep vs. disposal decision.
II. The cost of special electrical wiring, in an equipment acquisition decision.
III. The salary of a supervisor who will be transferred elsewhere in the organization, in a department-closure decision.
Which of the above costs is (are) relevant to the decision situation noted?

• A) I only.
• B) II only.
• C) III only.
• D) I and II.
• E) II and III.

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Definitions:

Purely Competitive Firm

A market structure where firms are price takers and sell homogeneous products with many buyers and sellers, leading to perfect competition.

Economic Profit

The contrast between a company's overall receipts and its full charges, considering both palpable and inferred costs.

Long Run

A time period in economics during which all factors of production and costs are variable, allowing for all adjustments to be made to achieve an equilibrium.

Competitive Increasing-cost Industry

An industry in which the entry of new firms causes the input prices to increase, leading to upward-sloping supply curves for the firms.