If a Large Increase in the Wage Rate Leads to a Net

question 144

Multiple Choice

If a large increase in the wage rate leads to a net increase in the use of capital by a firm,then

• A)the substitution effect outweighed the output effect.
• B)the output effect outweighed the substitution effect.
• C)the substitution and output effects are equal.
• D)there is no way to estimate the relative size of the substitution and output effect.

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Definitions:

Raw Materials

Basic materials that are used in the production process of manufacturing goods, which are then converted into finished products.

Standard Cost

A predetermined cost of manufacturing, labor, and material as estimated in accordance with standards set by the company.

Direct Materials

These are raw materials that can be directly attributed to the production process of a product, such as steel for a car or flour for a bakery.

Materials Price Variance

The difference between the actual cost of materials used in production and the standard cost of those materials as budgeted.