If the Market Price Ever Drops Below a Firm's Average

question 102

Multiple Choice

If the market price ever drops below a firm's average variable costs at its profit-maximizing level of output:

• A)the firm should shut down immediately.
• B)the loss-minimizing quantity of output is zero.
• C)the firm is not earning enough revenue to cover the variable costs of production.
• D)All of these are true.

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Definitions:

Cost of Goods Sold

Costs directly related to making the goods that a company markets.

Overapplied Overhead

Occurs when the allocated overhead costs exceed the actual overhead costs incurred.

Net Operating Income

Represents the profit earned from a company's core business operations, excluding expenses and revenues from non-operating activities.

Job-Order Costing

A cost accounting system that assigns manufacturing costs to an individual product or batch of products, typically used when the products being produced are sufficiently different from each other.