If the Market Price Is $60, a Firm's Minimum Average

question 112

Multiple Choice

If the market price is $60, a firm's minimum average total cost is $70, and minimum average variable cost is $50, what should the firm do in this perfectly competitive market?

• A) The firm should continue producing because the firm is earning an economic profit.
• B) The firm should continue producing because the firm is earning a normal profit.
• C) The firm should continue producing in the short run in order to minimize losses.
• D) The firm should shut down operations in order to minimize losses.

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Definitions:

Decision Making

The cognitive process of selecting a course of action from among multiple alternatives, often involving risk, uncertainty, or compromise.

Actual Costs

Actual costs represent the total expenses incurred during a specific period for goods produced or services rendered, including materials, labor, and overhead.

Perpetual System

An inventory accounting system that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.

FIFO Method

A method used in accounting to value inventory and determine cost of goods sold, assuming the oldest inventory items are sold first.