Suppose the Minimum Average Total Cost (ATC) of a Firm

question 80

Multiple Choice

Suppose the minimum average total cost (ATC) of a firm competing in a competitive price-taker market was $1.00 per unit and that the firm's minimum average variable cost (AVC) was $.80 per unit. If the market price was $.75 per unit, a profit-seeking firm would

• A) shut down immediately.
• B) produce where MR = MC in the short run.
• C) shut down in the long run but remain in business in the short run.
• D) do both b and c.

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Definitions:

Discount Factor

The discount factor is a multiplier that adjusts the future value of a cash flow to its present value, reflecting the time value of money.

Discount Rate

The applied rate in discounted cash flow studies for turning future cash flows into their equivalent present-day financial value.

Cash Inflows

Money received by a business from its operations, investments, or financing activities.

Discount Factor

A multiplier used to calculate the present value of future cash flows; reflects the time value of money.