If a Competitive Firm in the Short Run Finds That

question 28

Multiple Choice

If a competitive firm in the short run finds that its average total cost is below the price, the firm

• A) has an economic loss.
• B) should shut down.
• C) should exit the industry.
• D) has an economic profit.

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Definitions:

Variable Manufacturing Costs

Expenses that vary directly with the level of production, such as raw materials and labor.

Book Value

The net value of a company's assets, calculated by subtracting its liabilities from its total assets.

Market Value

The current price at which an asset or service can be bought or sold in the open market.

Salvage Value

The estimated value that an asset will realize upon its sale at the end of its useful life, after deducting the cost of removal or disposal.