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

question 328

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 higher than P4 but less than P6, 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:

Degree of Operating Leverage

A ratio that measures the sensitivity of a company's operating income to a percentage change in revenue.

High-low Method

A technique used in accounting and finance to estimate variable and fixed components of a cost based on the highest and lowest activity levels.

Cost Analysis

The process of assessing the costs involved in carrying out a particular business activity or project.

Variable Expenses

Costs that vary in direct proportion to changes in the level of activity or volume of production.