The Following Question Are Based on the Following Diagram of the Average

question 74

Multiple Choice

The following question are based on the following diagram of the average cost curves for three different-sized plants:

-If the firm is still in the planning stages of plant construction,it should choose the

• A) small plant if it expects an output rate below 3,000 units per day.
• B) large plant regardless of output because it has the lowest per unit costs.
• C) medium-sized plant because it would give the firm the most flexibility, allowing it to produce any output between 0 and 3,000.
• D) small plant if it expects an output rate below 1,000 per day.
• E) medium-sized plant because it has the advantage of increasing economies of scale.

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Definitions:

Interest Payments

Payments made to a lender by a borrower in return for the use of borrowed money, typically calculated as a percentage of the principal.

Net New Equity

The difference between equity capital a company raises by issuing new shares and the capital it uses to buy back existing shares.

Dividend Payments

Allocations of a segment of a company's profits, determined by the board of directors, to a category of its stockholders.

Current Liabilities

These are obligations or debts that a company is expected to pay within one year.