A Firm in Pure Competition Would Shut Down When

question 23

Multiple Choice

A firm in pure competition would shut down when:

• A) price is less than average total cost
• B) price is less than average fixed cost
• C) price is less than marginal cost
• D) price is less than average variable cost

---

Definitions:

Fixed Manufacturing Overhead

Indirect production costs that remain constant regardless of the level of production, such as factory rent or salaries of production supervisors.

Variable Costing

An accounting method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in product costs, excluding fixed overhead costs.

LIFO Inventory

A method of inventory valuation where the most recently produced or acquired items are recorded as sold first, standing for Last In, First Out.

Absorption Costing

An accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of a product.