Consider the Following Scenario: a New Manufacturing Process Is Introduced

question 144

Multiple Choice

Consider the following scenario: a new manufacturing process is introduced to make hockey skates. The new process is more efficient, lowers the cost of producing hockey skates, and allows more firms start producing hockey skates. At the same time, more individuals prefer hockey as a leisure activity and hockey league registration fees have gone down. What will happen to the equilibrium price and quantity?

• A) price will fall and the effect on quantity is ambiguous
• B) price will rise and the effect on quantity is ambiguous
• C) quantity will fall and the effect on price is ambiguous
• D) quantity will rise and the effect on price is ambiguous

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Definitions:

Applied Overhead

The allocation of estimated overhead costs to specific production activities or jobs based on a predetermined rate or method.

Incurred

Refers to costs that have been realized or expended in association with a specific activity or period.

Manufacturing Costs

The total expenses involved in the manufacture of products, including direct materials, direct labor, and factory overhead.

Inventory Accounts

Accounts used to track the cost of goods that are either manufactured or purchased for resale by a business.