Suppose All Firms Have Constant Marginal Costs That Are the Same

question 105

Multiple Choice

Suppose all firms have constant marginal costs that are the same for each firm in the short run. In this case, the market level supply curve is ________ and producer surplus equals ________.

• A) perfectly inelastic; fixed costs
• B) perfectly inelastic; zero
• C) perfectly elastic; fixed costs
• D) perfectly elastic; zero

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Definitions:

Average-Risk Projects

Investments that present a level of uncertainty and potential returns that are typical or normal compared to other projects within the same industry.

WACC

An estimated average interest rate a company is expected to pay to all its security holders, reflecting the cost of equity and the cost of debt, weighted according to the proportion of equity and debt in the company's capital structure.

Below-Average Risk

Below-Average Risk indicates an investment or asset has a lower risk of loss compared to the average risk of the investment market or its relevant sector.

WACC

Weighted Average Cost of Capital; a measure of a firm's cost of capital in which each category of capital is proportionately weighted.