A Certain Competitive Firm Sells Its Output for $20 Per

question 365

Multiple Choice

A certain competitive firm sells its output for $20 per unit.The 50th unit of output that the firm produces has a marginal cost of $22.Which of following is not necessarily true?

• A) Production of the 50th unit of output increases the firm's total revenue by $20.
• B) Production of the 50th unit of output increases the firm's total cost by $22.
• C) Production of the 50th unit of output decreases the firm's profit by $2.
• D) Production of the 50th unit of output increases the firm's average variable cost by $0.44.

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Definitions:

Target Capital Structure

The mix of debt, preferred stock, and common equity that a company aims to hold to minimize its cost of capital.

Projected Capital Budget

A forward-looking budget that outlines anticipated investments in projects and assets for the purpose of long-term growth.

Net Income

The net income of a business following the deduction of all costs and taxes from its overall revenue.

Residual Dividend Policy

A method where dividends are based on earnings minus capital expenditures and working capital needs; basically, dividends are paid from leftover or residual earnings.