When Total Revenue Is Less Than Variable Costs, a Firm

question 49

Multiple Choice

When total revenue is less than variable costs, a firm in a competitive market will

• A)continue to operate as long as average revenue exceeds marginal cost.
• B)continue to operate as long as average revenue exceeds average fixed cost.
• C)shut down.
• D)raise its price.

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Definitions:

Direct Labor Hour

A measure of the time spent by workers manufacturing a product or delivering a service.

Special Materials

Unique or unusual materials required for specific production processes or products, often implying additional cost or procurement effort.

Step-fixed Costs

Expenses that remain constant over a range of production but can change when production exceeds certain levels.

Inflationary Price Increase

A rise in prices across the board that is often attributed to an increase in the money supply or demand outpacing supply.