Figure 14-5 Suppose a Firm Operating in a Competitive Market Has the Has

question 201

Multiple Choice

Figure 14-5
Suppose a firm operating in a competitive market has the following cost curves:
-Refer to Figure 14-5. In the short run, if the market price is P4, individual firms in a competitive industry will earn

• A)positive profits.
• B)zero profits.
• C)losses but will remain in business.
• D)losses and will shut down.

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Definitions:

Bad Debts Expense

An expense account that represents accounts receivable that a company does not expect to collect and writes off as a loss.

Allowance for Doubtful Accounts

A contra-asset account used to estimate the portion of accounts receivable that is expected not to be collected.

Percentage-of-Receivables Basis

A method used in accounting to estimate the amount of accounts receivable that will not be collected by applying a percentage based on historical data.

Bad Debt Expense

A cost reported on the income statement, reflecting credit sales that are not expected to be collected.