-The Table Above Shows Output and Costs of Evan's Subs

question 442

Multiple Choice

-The table above shows output and costs of Evan's Subs, a typical perfectly competitive firm in a local market for sandwiches. Evan's fixed cost is $9 per hour. The current market price of a sandwich is $6. If the market price does NOT change, Evan's will

• A) continue to operate in the short run, but will exit the industry in the long run.
• B) continue to operate in the short run and in the long run.
• C) shut down.
• D) increase its production in the long run.

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Definitions:

Corporate Subsidiary

A company that is completely or majority-owned by another company, known as the parent company.

New Equity Financing

The process of raising capital through the sale of shares in a company to new investors.

Leveraged Buyouts (LBOs)

Transaction in which a firm’s publicly owned stock is acquired in a mostly debt-financed tender offer, and a privately owned, highly leveraged firm results. Often, the firm’s own management initiates the LBO.

Private Equity Groups

Firms that invest in private companies, often acquiring significant or controlling stakes, with the intention of improving performance and increasing value before eventually selling the investment for a profit.