A Firm Sells a Product in a Purely Competitive Market

question 58

Multiple Choice

A firm sells a product in a purely competitive market.The marginal cost of the product at the current output of 500 units is $1.50.The average variable cost is $1.00.The market price of the product is $1.25.To maximize profits or minimize losses, the firm should

• A)continue producing 500 units.
• B)continue production, but produce less than 500 units.
• C)increase production to more than 500 units.
• D)shut down.

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Definitions:

Paid-in Capital

The amount of money that a company receives from issuing shares of stock, recorded in the shareholders' equity section of the balance sheet.

Scrip Dividend

A method of paying dividends in the form of additional shares instead of cash.

Earnings Per Share

A financial ratio that measures the portion of a company's profit allocated to each outstanding share of common stock.

Declaration Date

The specific day on which a company’s board of directors announces its intent to pay a dividend to shareholders.