Which of the Following Statements Best Reflects the Production Decision

question 73

Multiple Choice

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive price-taker market when price falls below the minimum of average variable cost?

• A) The firm will continue to produce to attempt to pay fixed costs.
• B) The firm will stop production to minimize its losses.
• C) The firm will stop production as soon as it is able to pay its sunk costs.
• D) The firm will continue to produce in the short run but will likely exit the market in the long run.

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Definitions:

Connective

A logical operator that links propositions in compound sentences, such as "and," "or," "not."

Clause

A part of a sentence that contains its own subject and predicate, which can either stand alone as a sentence or be part of a larger sentence.

Proposition

A declarative statement that can either be true or false but not both, used as the basic building block of logic and argumentation.

Relative Clause

A part of a sentence that modifies a noun and begins with a relative pronoun, like 'who', 'which', or 'that'.