If the Market Price Is $50 for a Unit of a Good

question 256

Multiple Choice

If the market price is $50 for a unit of a good produced in a perfectly competitive market and the firm's minimum average variable cost is $52,then to maximize its profit (or minimize its loss) the firm should

• A) definitely produce the unit.
• B) shut down.
• C) not produce the unit but remain open.
• D) not produce the unit. Whether the firm should shut down or remain open cannot be determined without more information.
• E) produce the unit only if the price exceeds the average fixed cost.

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Definitions:

Residual Income

The income that remains after all costs and expenses, including the cost of capital, have been subtracted from net income.

Average Invested Capital

The average amount of money invested in a company over a certain period, used to evaluate the company's financial performance.

Investment Turnover

An indicator of how effectively an organization is using its invested capital to produce income.

Profit Margin

A financial metric that measures the amount of net income earned with each dollar of sales generated, expressed as a percentage.