A Competitive Price-Taker Firm Would Be Willing to Remain in the Industry

question 148

Multiple Choice

A competitive price-taker firm would be willing to remain in the industry in the long run at zero economic profit because

• A) it would find it too difficult to exit from the industry in the long run.
• B) accounting profit would be negative.
• C) it is covering all costs, including the opportunity cost of capital and labor.
• D) its sunk costs would prevent it from leaving the industry.

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Definitions:

Allowance for Doubtful Accounts

A reserve account used to estimate the amount of receivables that may not be collectible.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or within the normal operating cycle of the business, whichever is longer.

Allowance for Doubtful Accounts

A contra-asset account that represents the amount of accounts receivable a company does not expect to collect.

Accounts Receivable

The money owed to a business by its customers for goods or services that have been delivered or sold but not yet paid for.