When a Profit-Maximizing Firm in a Competitive Market Is Unable

question 248

Multiple Choice

When a profit-maximizing firm in a competitive market is unable to generate enough revenue to pay all of its fixed costs,what should it do in the short run

• A)It should shut down and incur a loss equal to its fixed costs.
• B)It should shut down until it is able to produce where average revenue exceeds average fixed cost.
• C)It should continue to produce as long as marginal cost is less than average revenue.
• D)It should continue to produce as long as total revenue is sufficient to pay variable costs.

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Definitions:

Present Value

The value today of a future sum of money or cash flow sequence, discounted at a particular rate of return.

Equal Amount

A term indicating that two or more quantities are the same in value or measure.

Ten Years

A period of ten consecutive years, often used as a significant measurement of time for planning, analysis, and comparison in various contexts.

Discount Rate

The interest rate that is used in the context of DCF analysis which helps in determining the current value of cash flows to be received in the future.