Suppose a Profit-Maximizing Firm in a Competitive Market Produces Rubber

question 18

Multiple Choice

Suppose a profit-maximizing firm in a competitive market produces rubber bands. When the market price for rubber bands rises above the minimum of its average variable cost, but still lies below the minimum of average total cost, in the short run the firm will

• A)experience losses but will continue to produce rubber bands.
• B)shut down.
• C)earn both economic and accounting profits.
• D)raise the price of its product.

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Definitions:

Financing Activities

Transactions between a company and its investors or creditors related to equity and debt, including issuing shares and obtaining loans.

Comparative Balance Sheet

A financial statement that presents the financial position of a company at two or more points in time, allowing for comparison and analysis of changes.

Cash Dividend

A payment made by a company out of its profits to its shareholders in the form of cash.

Investing Activities

Activities that involve the acquisition and disposal of long-term assets and other investments not included in cash equivalents.