Suppose That One Firm Produces a Product That Results in Negative

question 287

Multiple Choice

Suppose that one firm produces a product that results in negative external costs to society. This information suggests that

• A) resources are under-allocated to the firm.
• B) the equilibrium market price of the product includes the external costs borne by society.
• C) resources are over-allocated to the firm.
• D) at the market price, quantity demanded is less than quantity supplied.

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Definitions:

Recognizing Receivable

The accounting process of recording revenue when earned and receivables that are expected to be collected, regardless of cash receipt.

Allowance Account

An account used to record reductions in the book value of accounts receivable due to potential future defaults on payments.

Doubtful Accounts

Doubtful accounts represent receivables that a company is uncertain to collect, typically categorized separately to reflect potential losses.

Cash Discount

A reduction in the invoice amount by the seller if the buyer pays their bill within a specified time frame, incentivizing prompt payment.