If the Producer of a Product Has Entered into a Fixed

question 14

Multiple Choice

If the producer of a product has entered into a fixed price sale agreement for that output,the producer generally faces:

• A)a nice steady profit because the output price is fixed.
• B)an uncertain profit if the input prices are volatile.This risk can be reduced by a short hedge.
• C)an uncertain profit if the input prices are volatile.This risk can be reduced by a long hedge.
• D)a modest profit if the input prices are stable.This risk can be reduced by a long hedge.
• E)a modest profit if the input prices are stable.This risk can be reduced by a short hedge.

---

Definitions:

Average Cost

An alternative term for average total cost; the total cost divided by the quantity of output produced.

Deadweight Loss

A reduction in economic effectiveness that happens when a product or service does not reach, or cannot reach, its equilibrium state.

Average Cost

The total cost of production divided by the number of units produced, indicating the cost per unit.

Consumer Surplus

The bifurcation between what a consumer wishes to pay for a service or good, and what ends up being spent.