If a Firm Is a Price Taker and Wants to Earn

question 214

Multiple Choice

If a firm is a price taker and wants to earn as much profit as possible, it should expand output

• A) to the quantity at which marginal cost is minimized.
• B) as long as marginal cost is less than price.
• C) to the quantity at which average total costs are minimized.
• D) to try to sell all the output it can produce so that its average fixed costs will be minimized.

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Definitions:

Working Capital

Current assets minus current liabilities, representing the short-term liquidity and operational efficiency of a business.

Current Ratio

An indicator of financial health showing whether a business can cover its short-term debts with assets that can be quickly converted into cash.

Acid-Test Ratio

A stringent indicator of a company's short-term liquidity, calculated by dividing liquid assets by current liabilities.

Times Interest Earned

This is a financial ratio that measures a company's ability to meet its debt obligations by comparing its interest expenses to its earnings before interest and taxes.