The Effect of Uniform Production Levels on Unit Production Costs

question 130

Multiple Choice

The effect of uniform production levels on unit production costs can be achieved

• A)by using a factory overhead rate based on long-run normal production activity level.
• B)by using a factory overhead rate based on selling price.
• C)by closing the factory overhead at the end of the accounting period.
• D)by using a factory overhead rate based on different production levels for each year.

---

Definitions:

Long-Run Equilibrium

A state in which all factors of production can be adjusted, allowing firms to enter or exit the market, resulting in a situation where economic profits are zero in a perfectly competitive market.

P = MR

An economic principle where the price (P) of a product equals its marginal revenue (MR), often applied in perfectly competitive markets.

Minimum ATC

The lowest point on the Average Total Cost curve, where a firm is producing at the most cost-efficient level.

Productive Efficiency

A state in which the economy or an economic system is able to produce maximum output from a given set of inputs without wasting resources.