If Current Output Is Less Than the Profit-Maximizing Output, Which

question 17

Multiple Choice

If current output is less than the profit-maximizing output, which must be true?

• A) Total revenue is less than total cost.
• B) Average revenue is less than average cost.
• C) Average revenue is greater than average cost.
• D) Marginal revenue is less than marginal cost.
• E) Marginal revenue is greater than marginal cost.

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Definitions:

M&M Proposition II

A firm’s cost of equity capital is a positive linear function of its capital structure.

Cost of Capital

The cost of funds used for financing a business, typically considered as the weighted average of the costs of equity and debt financing.

Tax Rate

The amount of tax a person or company must pay, expressed as a percentage of income.