When the Average Total Cost Curves for Firms Are Unaffected

question 15

Multiple Choice

When the average total cost curves for firms are unaffected by the entry of other firms,

• A)it is an increasing-cost industry
• B)it is a decreasing-cost industry
• C)the market's equilibrium price will eventually be restored after the market demand increases
• D)firms will charge a higher price when demand rises
• E)the long-run supply curve is positively sloped

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of a product.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product.

Factory Overhead

All indirect costs associated with manufacturing, including but not limited to utilities, maintenance of equipment, and factory staff salaries, excluding direct labor and direct materials.

Absorption Costing Income Statement

An income statement format that incorporates the full cost of manufacturing a product, including both fixed and variable manufacturing costs, in determining the cost of goods sold.