Which of the Following Is NOT an Assumption of the Classical

question 189

Multiple Choice

Which of the following is NOT an assumption of the classical model?

• A) Wages and prices are flexible.
• B) People are motivated by self-interest.
• C) Money illusion exists.
• D) Pure competition exists.

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Definitions:

Variable Costs

Expenses that change in proportion to the activity of a business, such as costs for raw materials or production expenses, in contrast to fixed costs.

Fixed Manufacturing Cost

Expenses that do not change with the level of production, such as rent for factory premises, salaries for permanent staff, and depreciation of equipment.

Manufacturing Overhead Cost

Expenses related to the production process that are not directly tied to a specific product, including utilities, depreciation, and salaries for production supervisors.

Period Costs

Costs that are expensed in the period they are incurred, not directly tied to the production of goods, such as selling, general, and administrative expenses.