If a Firm Decreases Its Plant Size and Finds That

question 98

Multiple Choice

If a firm decreases its plant size and finds that its long-run average costs have decreased, then

• A)its labor is more productive in a smaller plant.
• B)its diseconomies of scale are less.
• C)the firm should reduce its plant size even more.
• D)the firm is now profitable.

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Definitions:

Cost of Capital

The return a company needs to earn on its investment projects to maintain its value and attract funds.

Financial Decision Makers

Individuals or groups responsible for making investment, financing, and dividend decisions within a company.

Capital Budgeting

The process used by companies to evaluate and prioritize investments in long-term assets based on their potential to generate profit.

Cost of Capital

The rate of return a company must pay to its creditors and shareholders for the use of their capital.