If It Becomes Less Expensive for Firms to Hold Excess

question 261

Multiple Choice

If it becomes less expensive for firms to hold excess capital and labor, the multiplier will

• A) decrease.
• B) remain unchanged.
• C) increase.
• D) either increase or decrease depending on the value of the MPC.

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Definitions:

Fixed Costs

Regularly occurring costs that remain constant in total, irrespective of changes in operational levels or volume of output.

Variable Costs

Costs that change in direct proportion with the level of output or activity of a business.

Underapplied Overhead

occurs when the allocated manufacturing overhead cost is less than the actual overhead incurred, leading to a discrepancy.

Overapplied Overhead

A situation where the allocated manufacturing overhead costs exceed the actual overhead costs incurred.