The Central Hypothesis of the Theory of the Firm Is

question 51

Multiple Choice

The central hypothesis of the theory of the firm is that the firm chooses an organizational form that maximizes profits:

• A)given capital requirements.
• B)net of operating costs.
• C)given market prices.
• D)net of any transactions costs.

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Definitions:

Average Variable Cost

The total variable costs (like labor and materials) divided by the quantity of output produced, indicating the variable cost per unit.

Variable Cost

Costs that change in proportion to the activity of a business, such as materials and labor costs.

Total Cost

The complete cost of production that includes both fixed and variable costs.

Fixed Cost

Expenses that do not change in the short term, irrespective of the level of production or sales volume.