When Price Exceeds Average Variable Cost in the Short Run

question 558

Multiple Choice

When price exceeds average variable cost in the short run, a competitive firm's marginal cost curve is regarded as its supply curve because

• A)the position of the marginal cost curve determines the price for which the firm should sell its product.
• B)among the various cost curves, the marginal cost curve is the only one that slopes upward.
• C)the marginal cost curve determines the quantity of output the firm is willing to supply at any price.
• D)the firm is aware that marginal revenue must exceed marginal cost in order for profit to be maximized.

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Definitions:

Net Sales

The amount of sales generated by a company after deducting returns, allowances, and discounts.

Allowance Method

A method of accounting that estimates and sets aside an amount for potentially uncollectible receivables.

Bad Debts

Receivables from accounts deemed not collectable, which constitute financial losses for the business.

Accounts Receivable Turnover

A financial ratio that measures how many times a company collects its average accounts receivable balance within a specific period.