In the Short- Run, a Competitive Firm Will Produce Some

question 4

Multiple Choice

In the short- run, a competitive firm will produce some output even though its profit is negative if:

• A)price exceeds the minimum value of SAVC.
• B)price exceeds the minimum value of SMC.
• C)it expects prices to increase enough to earn positive profits soon.
• D)price exceeds the minimum value of SATC.

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Definitions:

Cost of Debt

The effective interest rate a company pays on its debts, a key component in the calculation of a firm’s cost of capital.

Risk Premium

The excess return required from an investment in a risky asset over a risk-free investment.

Flotation Costs

The costs associated with issuing new securities, including underwriting, legal, registration, and other expenses.

Securities

Investment assets that denote a shareholding in a publicly-listed company (stock), a bondholder’s claim against a corporation or government, or ownership rights as outlined in an option contract.