In a Market Where There Are External or Spillover Costs

question 72

Multiple Choice

In a market where there are external or spillover costs associated with consumption and production,the equilibrium will not be efficient because:

• A) price will be greater than MC.
• B) firms will shut down until costs are reduced.
• C) costs of production will,on average,be too high.
• D) too many resources will be allocated to production of the good.

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Definitions:

Labor Efficiency Variance

The difference between the actual hours worked and the expected hours worked, valued at the standard labor rate.

Labor Rate Variance

The variance between the real labor cost and the anticipated (or norm) cost, calculated based on the working hours.

Materials Quantity Variance

A calculation of the difference between actual material usage and expected usage in production, multiplied by the standard cost for each unit.

Materials Price Variance

The difference between the actual cost of materials and the expected cost based on standard prices.