A Profit-Maximizing Firm Will Shut Down in the Short Run

question 391

Multiple Choice

A profit-maximizing firm will shut down in the short run when

• A)price is less than average variable cost.
• B)price is less than average total cost.
• C)average revenue is greater than marginal cost.
• D)average revenue is greater than average fixed cost.

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Definitions:

Direct Materials Standards

The expected cost and quantity of materials required for the production of a unit of product.

Raw Material Price

This refers to the cost of basic materials that are used in the production of goods.

FOH Budget Variance

The difference between the budgeted factory overhead costs and the actual overhead costs incurred.

FOH Volume Variance

The difference between the budgeted fixed overhead and the applied amount based on the actual activity level.