The Shutdown Decision Can Be Restated in Terms of Producer

question 51

Multiple Choice

The shutdown decision can be restated in terms of producer surplus by saying that a firm should produce in the short run as long as:

• A) revenue exceeds producer surplus.
• B) producer surplus is positive.
• C) producer surplus exceeds fixed cost.
• D) producer surplus exceeds variable cost.
• E) profit and producer surplus are equal.

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Definitions:

Contribution Margin

The selling price per unit, minus the variable cost per unit, indicating the contribution towards covering fixed costs and profit.

Business Risk

The potential for loss or failure in a business operation due to factors like market conditions, financial instability, or operational challenges.

Financial Risk

The possibility of losing money on an investment or business venture, including market risk, credit risk, liquidity risk, and operational risk.

Variable Cost Ratio

This is a financial metric that represents the variable costs incurred as a percentage of sales, showing how much of each sales dollar is eaten by variable costs.