If the Supply Curve of a Good Is Horizontal, Then

question 6

Multiple Choice

If the supply curve of a good is horizontal, then the elasticity of supply is:

• A)equal to zero.
• B)equal to one.
• C)greater than one but less than infinity.
• D)equal to infinity.
• E)less than one.

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Definitions:

Contribution Margin

The difference between sales revenue and variable costs of a product or service, indicating how much contributes towards covering fixed costs and profit.

Variable Costs

Costs that vary in direct proportion to changes in the level of production or sales.

Fixed Costs

Expenses that remain constant regardless of the level of output or sales, including rent, wages, and insurance costs.

Margin of Safety

The difference between actual or expected sales and sales at the break-even point. It measures how close a company is to not covering its fixed costs.