If You Consider the Equity of a fiRm to Be

question 262

Multiple Choice

If you consider the equity of a firm to be an option on the firm's assets then the act of paying off debt is comparable to _____ on the assets of the firm.

• A) purchasing a put option
• B) purchasing a call option
• C) exercising an in-the-money put option
• D) exercising an in-the-money call option
• E) selling a call option

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Definitions:

MC

Marginal Cost, the change in total cost that arises when the quantity produced is incremented by one unit.

ATC

Average Total Cost refers to the total cost per unit of output, calculated by dividing the total cost of production by the number of units produced.

Fixed Costs

Expenses that do not change in relation to the level of goods or services produced within a certain period, such as rent or salaries.

Short Run

A period in which at least one input is fixed while others may be varied to adjust output levels.