A Firm Operating in a Perfectly Competitive Industry Will Continue

question 108

True/False

A firm operating in a perfectly competitive industry will continue to operate in the short run but earn losses if the market price is less than that firm's average variable cost.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the fixed versus variable costs structure of a business.

Financial Leverage

A technique employed by companies to increase their market value and return on investment by using debt to finance its operations.

EBIT

Earnings Before Interest and Taxes, a measure of a company's profitability calculated by excluding interest and income tax expenses.

Breakeven Diagrams

Graphical representations that show the point at which total costs and total revenue are equal, indicating no net loss or gain.