If Total Assets Go Down and Total Liabilities Go Up

question 3

Multiple Choice

If total assets go down and total liabilities go up, the current ratio:

• A) remains the same.
• B) decreases.
• C) increases.
• D) cannot be determined from the information given.
• E) is not affected at all by these changes.

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Definitions:

Marginal Cost

The increase in cost that arises from producing one additional unit of a good or service.

Total Variable Cost

The sum of all variable costs associated with the production of a given level of output.

Total Fixed Cost

The sum of all costs required to produce any product or service that does not change with the level of output.

Average Fixed Costs

Average fixed costs are the total fixed costs of production divided by the quantity of output produced, which decreases as production increases.