Exhibit 6-15 Long-Run Average Cost

question 16

Multiple Choice

Exhibit 6-15 Long-run average cost

If the firm represented in Exhibit 6-15 is operating with a plant whose size corresponds to short-run average total cost curve A, the level of output that would minimize its short-run average total cost is:

• A) 500 units per week.
• B) 1,000 units per week.
• C) 1,500 units per week.
• D) 2,000 units per week.

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Definitions:

Payback Period

The timeframe required for an investment to generate cash flows sufficient to recover its initial cost.

AAR

Average Annual Return, which measures the average return on an investment over a multi-year period.

Multiple Rates Of Return

One potential problem in using the Internal Rate of Return method if more than one discount rate makes the Net Present Value of an investment zero.

Net Present Value

A process that evaluates how the worth of a dollar now compares to its worth in the future, factoring in both inflation and investment returns.