On August 5,2003,a Tragic Fire Destroyed a Large Jim Beam

question 59

Multiple Choice

On August 5,2003,a tragic fire destroyed a large Jim Beam whiskey factory in Kentucky.Assume that the U.S.market for whiskey is perfectly competitive,and that the market was originally in long run equilibrium.What would be the effects of such a whiskey factory fire?

• A)An increase in supply would cause a reduction in price,which would then lead to entry of firms.
• B)A decrease in supply would cause an increase in price,which would then lead to entry of firms.`
• C)An increase in supply would cause an increase in price,which would then lead to entry of firms
• D)A decrease in supply would cause an increase in price,which would then lead to exit of firms.
• E)Price of the whiskey remains unchanged and the existing firms continue to earn zero economic profit.

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Definitions:

Conversion Costs

The total expense required to convert raw materials into finished goods, including labor and overhead costs.

Process Costing

An accounting methodology that traces and accumulates direct costs, and allocates indirect costs of a manufacturing process, to calculate the total cost of manufacturing a product.

Weighted-Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory based on the average cost of all goods available for sale during the period.

Conversion Costs

The sum of direct labor and manufacturing overhead costs, representing the costs incurred to convert raw materials into finished goods.