Suppose a Firm with the Usual U-Shaped Cost Curves Is

question 144

Multiple Choice

Suppose a firm with the usual U-shaped cost curves is producing a level of output such that its short run costs are as follows: ATC = $0.37 per unit
AVC = $0.32 per unit
AFC = $0.05 per unit
MC = $0.43 per unit
Given these short run costs,which of the following statements is true?

• A)The firm is operating with excess capacity.
• B)The firm is operating at capacity.
• C)The firm is operating above capacity.
• D)The firm has no capacity constraints.
• E)The firm is producing a level of output where capacity is increasing.

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Definitions:

Production Cost Report

A document that outlines the total cost and production data for a specific period, typically used in process costing systems.

Equivalent Units

A standardization method used in cost accounting to express production activity of various products in terms of a single, common 'equivalent unit'.

Units in Process

Refers to unfinished goods that are still in the production process at the end of an accounting period.

Work in Process

Refers to the costs incurred for partially completed goods in manufacturing at a certain point in time.