The Razor-Thin Disposable Razor Company Is a Perfectly Competitive Firm

question 320

Multiple Choice

The Razor-Thin Disposable Razor Company is a perfectly competitive firm producing where MR = MC. The current market price of a disposable razor is $3.00. The firm sells 1,800 disposable razors. Its AVC is $4.00 and its AFC is $1.50. What should Razor-Thin do?

• A) Continue to produce because price exceeds AFC.
• B) Shut down and produce zero razors because price is less than AVC.
• C) Decrease production so that AVC will decrease.
• D) Increase production so that AFC will decrease.

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Definitions:

Crediting

The process of making an entry on the right side of an account in double-entry bookkeeping, indicating an increase in liabilities, equity, or revenue, or a decrease in an asset or expense.

Salaries Payable

A liability account representing amounts owed to employees for work performed and not yet paid.

Debit Postings

Entries made on the left side of an account, indicating an increase in assets or expenses or a decrease in liabilities, equity, or revenue.

Credit Postings

Entries made in the accounts to record increases in liabilities, revenues, or owner's equity and decreases in assets or expenses.