-Use the Figure Above to Answer This Question

question 4

Multiple Choice

-Use the figure above to answer this question. Consider a perfectly competitive firm in a short-run equilibrium. Figure ________ shows a firm in bad times because the firm makes a(n) ________.

• A) A; economic loss of $4 so it must close
• B) C; normal profit and can stay open in the long run
• C) B; economic loss of $3 per unit
• D) B; economic profit because the price exceeds average variable cost
• E) A; economic loss of $4 per unit if the firm decides to operate

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Definitions:

Incremental Sales

The additional sales generated by a particular business activity or decision.

Operating Expenses

Expenses that are incurred during the normal operation of a business, excluding the cost of goods sold.

Capital Budgeting

The approach of orchestrating and administering a business's enduring investments towards major initiatives or assets.

Straight-Line Depreciation

A scheme for apportioning the cost of a concrete asset over its lifespan in steady yearly payments.