Refer to the Graph Shown

question 39

Multiple Choice

Refer to the graph shown. If the market price is $4, a perfectly competitive firm:

• A) breaks even.
• B) earns a profit.
• C) incurs a loss but can still cover its variable costs and some of its fixed costs.
• D) incurs a loss and cannot cover its variable costs.

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Definitions:

Systematic Factors

Factors that affect the entire market or a large segment of the market, such as economic, political, or social changes.

Expected Inflation

The anticipated rate at which the general level of prices for goods and services will rise over a period, eroding purchasing power.

Lintner

Lintner refers to John Lintner, an economist known for his work on the dividend policy of firms and contributions to the capital asset pricing model (CAPM).

Miller and Scholes

Refers to Merton Miller and Myron Scholes, economists recognized for their work in finance, including the development of the Black-Scholes model for option pricing.