If the Price of a Product Is $12, Its Average

question 67

Multiple Choice

If the price of a product is $12, its average total cost is $2 and its average total cost is $15 at the profit-maximizing output level,  in the short run the firm:

• A) should expand output until MR = MC.
• B) cannot cover total fixed costs.
• C) experiences a loss.
• D) must always shut down.

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Definitions:

Variable Costs

Costs that vary directly with the level of production or volume of output.

Fixed Costs

Expenses that do not change in proportion to the level of production or sales activity within a certain range.

Plantwide Overhead Rate

A single rate used to allocate all of a plant's manufacturing overhead costs to its production activities based on a uniform cost-driver.

Cost Driver

An element that influences the expense of an operation or procedure to vary, utilized in activity-based costing for more precise cost allocation.