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

question 84

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 is producing output Q1 and the market price is P1,

• A)there are profits to induce increases in output by Firm X,using its existing plant.
• B)there is no lower-cost scale of plant which could be built by Firm X.
• C)Firm X is producing at its minimum efficient scale.
• D)Firm X is at its long-run profit-maximizing position.
• E)new firms have a profit incentive to enter the industry,building larger plants.

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Definitions:

Contribution Margin

The contribution margin represents the portion of sales revenue that is not consumed by variable costs and contributes to covering the company's fixed costs.

Depreciation Expense

A technique in accounting for distributing the expense of a physical asset across its usable life.

Fixed Costs

Expenses that do not change with the level of activity or output over a short period, such as rent, salaries, and insurance premiums.

Operating Leverage

A measure that evaluates the extent to which a firm can increase its profits by increasing sales, highlighting the fixed versus variable costs in operations.