Figure 6-5 -Refer to Figure 6-5.If the Solid Horizontal Line on the Line

question 192

Multiple Choice

Figure 6-5
-Refer to Figure 6-5.If the solid horizontal line on the graph represents a price ceiling,then the price ceiling is

• A)binding and creates a surplus of 60 units of the good.
• B)binding and creates a surplus of 20 units of the good.
• C)not binding but creates a surplus of 40 units of the good.
• D)not binding,and there will be no surplus or shortage of the good.

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Definitions:

Unit Variable Cost

The cost associated with producing one additional unit of a product, which typically includes materials and labor.

Fixed Costs

Expenses that do not change with the level of production or sales activity, such as rent, salaries, and insurance premiums.

Contribution Margin

The amount by which sales revenue exceeds variable costs of goods sold, indicating how much revenue contributes towards covering fixed costs and generating profit.

Variable Costs

Expenses that change in proportion to the level of production or sales activity, such as raw materials and direct labor.