FIGURE 9-1 -Refer to Figure 9-1. the Diagram Shows Cost Curves for Curves

question 82

Multiple Choice

FIGURE 9-1
-Refer to Figure 9-1. The diagram shows cost curves for a perfectly competitive firm. If the market price is P2, the profit-maximizing firm in the short run should

• A) produce output B.
• B) produce output C.
• C) produce output D.
• D) produce output E.
• E) shut down, as it is incurring losses.

---

Definitions:

Variable Costs

Costs that change in proportion to the level of production or sales volume, such as raw materials and direct labor.

Dollar Contribution Margin

The difference between total sales revenue and total variable costs, expressed in absolute currency terms.

Variable Cost

Costs that change in proportion to the level of production activity or volume, such as raw material costs and direct labor costs.

Fixed Cost

A cost that remains constant, in total, regardless of changes in the level of activity within the relevant range. If a fixed cost is expressed on a per unit basis, it varies inversely with the level of activity.