What Does the Margin of Safety in Units Measure

question 115

Multiple Choice

What does the margin of safety in units measure?

• A) how far fixed costs can rise before an operating loss occurs
• B) how far variable costs can rise before an operating loss occurs
• C) how far total costs can rise before an operating loss occurs
• D) how far sales can fall before an operating loss occurs

---

Definitions:

Decreasing-cost Industry

An industry where the cost per unit of output decreases as the scale of production increases.

Long-run Equilibrium Price

The price level at which the quantity supplied equals the quantity demanded, achieved over a period where all inputs can be varied by producers.

Increase in Demand

A situation where there is a rise in consumers' desire to purchase goods or services, leading to higher quantity demanded at every price level.

Constant Costs

Occur when the cost of producing an additional unit of a good does not change as the scale of production increases or decreases.