If There Are Large Fixed Costs Due to Research and Development

question 83

Multiple Choice

If there are large fixed costs due to research and development, perfect competition does not generate new ideas because:

• A) firms need to recoup these costs through higher profits.
• B) with monopolistic competition, prices are equal to the marginal cost.
• C) with monopolistic competition, prices are equal to the marginal cost minus a markup.
• D) perfectly competitive firms always set prices lower than the marginal cost.
• E) the government does not adequately fund innovation.

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Definitions:

Conversion Costs

The costs incurred to convert raw materials into finished goods, including direct labor and manufacturing overhead.

FIFO Process Cost Method

An accounting method for valuing inventory and cost of goods sold, where the oldest costs are assigned to the sold units first.

Unit Cost

Unit cost represents the total expense incurred to produce, store, and sell one unit of a product or service, including all variables and fixed costs.

Period Cost

Costs that are not directly associated with the production of goods and are expensed in the accounting period in which they are incurred.