In Computing a Price Index

question 387

Multiple Choice

In computing a price index,

• A) the most recent year is always set equal to 100.
• B) both the quantities in the market basket and the prices change from year to year.
• C) the quantities in the market basket stay the same while the prices differ.
• D) the base year must be one for which the inflation rate was zero.

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Definitions:

Average Total Cost

The sum of all production expenses (both fixed and variable) divided by the overall output.

Total Variable Cost

The cumulative expenses that change in proportion to the level of goods or services produced.

Output

refers to the quantity of goods or services produced by a firm, industry, or economy within a specific period.