If a Graph of a Perfectly Competitive Firm Shows That

question 44

Multiple Choice

If a graph of a perfectly competitive firm shows that the MR = MC point occurs where MR is above AVC but below ATC,

• A) the firm is earning negative profit, and will shut down rather than produce that level of output.
• B) the firm is earning negative profit, but will continue to produce where MR = MC in the short run.
• C) the firm is still earning positive profit, as long as variable costs are covered.
• D) the firm is covering explicit, but not implicit, costs.
• E) the firm can cover all of fixed costs but only a portion of variable costs.

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Definitions:

Percentage of Sales

A financial ratio that compares a particular expense or cost to the total sales revenue, often used to analyze cost behavior or performance.

Note Duration

The total length of time until a note payable or receivable matures and is to be repaid or collected.

Rate of Interest

The percentage of principal charged by the lender for the use of its money.

Principal Amount

The initial size of a loan or an investment, excluding any interest or profit that has been added over time.