In Both Price-Taker and Competitive Price-Searcher Markets, the Long-Run Market

question 227

Multiple Choice

In both price-taker and competitive price-searcher markets, the long-run market price of a good will be equal to the

• A) average total cost of producing the good.
• B) average variable cost of producing the good.
• C) average fixed cost of producing the good plus a normal return on that cost.
• D) marginal revenue derived from the sale of an additional unit of the good.

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Definitions:

Discount Rate

This is the rate used during discounted cash flow analysis for evaluating the present value of cash flows anticipated in the future.

Financial Break-even Point

It is the level of revenue necessary to cover a company’s fixed and variable costs, without generating profit or loss.

Degree of Operating Leverage

A financial metric that measures the sensitivity of a company's operating income to changes in its sales, highlighting the effect of fixed costs on profits.

Conventional Cash Flows

Conventional cash flows involve an initial outlay followed by a series of positive cash inflows, typically seen in standard investment scenarios.