Smith Industries Is Considering Replacing a Machine That Is Presently

question 21

Multiple Choice

Smith Industries is considering replacing a machine that is presently used in its production process. The following information is available: For a machine replacement decision which of the information provided in the table is a sunk cost?

• A)The original cost of the old machine
• B)The current disposal value of the old machine
• C)The current annual operating cost of the old machine
• D)The price of the new machine

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Definitions:

Diminishing Returns

is an economic principle stating that if one input in the production of a commodity is increased while other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output.

Labor Input

A measure of the amount of labor used in the production process, typically quantified in labor hours.

Total Product

The total output produced by a firm over a specific period as a result of input.

Marginal Products

The extra output generated from the inclusion of an additional unit of a particular input, while maintaining all other inputs at their current levels.