Refer to the Accompanying Graph for a Purely Competitive Firm

question 114

Multiple Choice

Refer to the accompanying graph for a purely competitive firm. When the firm is in equilibrium in the short run, its average fixed cost is

• A)EH.
• B)DE.
• C)DH.
• D)DB.

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Definitions:

Variable Costs

Costs that change in proportion to the level of activity or volume of production in a business.

Pretax Income

The amount of income that a company earns before any taxes are deducted.

Variable Cost

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

Fixed Costs

Costs that do not fluctuate with the level of production or sales activity, such as rent, salaries, and insurance premiums, remaining constant regardless of business volume.