Consider the Following Cost Curves for Firm X,a Perfectly Competitive

question 35

Multiple Choice

Consider the following cost curves for Firm X,a perfectly competitive firm.
FIGURE 9- 5
-Refer to Figure 9- 5.If Firm X has a capital stock that generates SRATC1,then in the long run Firm X will have to

• A)expand its output to Q2 with the existing plant size.
• B)either expand its plant size or exit from the industry.
• C)set its output at Q1 with an expanded plant size.
• D)maintain its output level at Q1,because it is maximizing its short- run profits.
• E)set its output at Q1 with the existing plant size.

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Definitions:

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period, used in capital budgeting to assess the profitability of an investment.

Working Capital

An indicator of a company's short-term financial health and operational efficiency, calculated as current assets minus current liabilities.

Discount Rate

The interest rate used in discounted cash flow analysis to determine the present value of future cash flows or to evaluate the attractiveness of an investment.

Net Present Value

A valuation method that calculates the present value of an investment's expected cash flows, minus the initial investment cost.