A Profit-Maximizing Firm in a Competitive Market Produces Small Rubber

question 225

Multiple Choice

A profit-maximizing firm in a competitive market produces small rubber balls.When the market price for small rubber balls falls below the minimum of its average total cost but still lies above the minimum of average variable cost,what happens to the firm

• A)It will experience losses, but it will continue to produce rubber balls.
• B)It will shut down.
• C)It will be earning both economic and accounting profits.
• D)It will be earning only accounting profits.

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Definitions:

Minimum Payments

The smallest amount of a debt that must be paid each period, often used in the context of credit card debt or loans to avoid penalties.

Endowment Effect

A cognitive bias where people ascribe more value to things merely because they own them.

Gains

The increase in economic benefit, which can be measured in terms of profit, utility, or welfare, resulting from an action or transaction.

Losses

The financial deficit arising when the cost of producing and operating exceeds the revenue generated.