Which of the Following Statements Best Reflects the Production Decision

question 73

Multiple Choice

Which of the following statements best reflects the production decision of a profit-maximizing firm in a competitive price-taker market when price falls below the minimum of average variable cost?

• A) The firm will continue to produce to attempt to pay fixed costs.
• B) The firm will stop production to minimize its losses.
• C) The firm will stop production as soon as it is able to pay its sunk costs.
• D) The firm will continue to produce in the short run but will likely exit the market in the long run.

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Definitions:

Phase Graph

A graphical representation showing the various phases (solid, liquid, gas) of a substance as a function of temperature and pressure.

Specific Heat Capacity

A physical property that describes the amount of heat energy required to raise the temperature of a substance by one degree Celsius (or one Kelvin).

Hydrogen Bonding

A weak bond between two molecules resulting from an electrostatic attraction between a proton in one molecule and an electronegative atom in the other.

Temperature of The Fire

The measure of warmth or coldness of a fire, indicating the intensity of combustion.