In the Short Run Average Costs Eventually ________ Because of Diminishing

question 229

Multiple Choice

In the short run average costs eventually ________ because of diminishing returns, and in the long run average costs eventually ________ because of diseconomies of scale.

• A) increase; increase
• B) increase; decrease
• C) decrease; increase
• D) decrease; decrease

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Definitions:

Interest Tax Shield

Deducting interest expenses on debt from taxable income leads to a reduction in income tax liability.

Capital Structure

The mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity which constitute its funding.

Corporate Tax Rate

The percentage of a corporation's profits that is handed over to the government as tax.