If a Perfectly Competitive Firm Can Sell Each Unit of Output

question 131

Multiple Choice

If a perfectly competitive firm can sell each unit of output for $9, and the marginal cost of the last unit produced is $8.50, then the:

• A)extra benefit of the last unit produced is less than the extra cost.
• B)firm should lower its output level in order to increase profits.
• C)firm is earning an average profit of $0.50.
• D)extra benefit of the last unit produced is greater than the extra cost.

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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, especially regarding liquidity.

Net Present Value

A technique employed in the process of capital allocation for evaluating the profitability of a project or investment through determining the net present value of cash inflows and outflows.

Mutually Exclusive Projects

Investment projects where the acceptance of one project prevents the acceptance of another due to resource constraints or other factors.

Net Present Values

The gap between the present value of cash entering and the present value of cash exiting over a certain period, used within capital budgeting to gauge the financial viability of an investment.