If a Producer Knew His Product to Be an Inferior

question 136

Multiple Choice

If a producer knew his product to be an inferior good and he also knew average household income was falling,he might

• A)decrease output because the demand for his product would rise.
• B)increase output because the demand for his product would rise.
• C)keep his output the same.
• D)cut output immediately because the demand for his product would surely fall.
• E)close down,because inferior goods are the first to be eliminated from household budgets when income falls.

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Definitions:

Traditional Costing System

An accounting method that allocates overhead costs to products based on a predetermined rate, typically using a single overhead pool.

Direct Labor-Hours

The cumulative hours put in by workers who are directly engaged in the production process.

Traditional Costing System

A cost accounting method that assigns overhead costs to products based on a predetermined rate, often ignoring the causal relationship between cost objects and activities.

Activity-Based Costing

A costing methodology that assigns overhead and indirect costs to related products and services based on their usage.