The High-Low Method

question 65

Multiple Choice

The high-low method

• A) calculates variable costs per unit by dividing the difference in the high and low activity levels by the high and low costs.
• B) assumes that the fixed portion of the mixed cost is the lowest monthly cost incurred during the period under consideration.
• C) allows differentiation between fixed and variable costs when dealing with mixed costs.
• D) combines the fixed and variable portions of a cost to determine the total cost.

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Definitions:

Budget Constraints

A representation of the trade-offs between different goods and services that a consumer can afford with their limited income.

Optimum

The most favorable condition or level for growth, reproduction, or efficiency, or the best or most efficient use of resources.

Substitution Effect

The financial concept where consumers opt for cheaper alternatives when prices increase or their income falls.

Income Effect

Adjustments in the income of a person or the economy and how these adjustments affect the need for certain goods or services.