A Firm Is Currently Selling Its Product at $20 Each

question 10

Multiple Choice

A firm is currently selling its product at $20 each. It estimates that its average total cost of production is $100 and its average fixed cost is $40. In the short run the firm should

• A)shutdown.
• B)continue production at a point where P = MC.
• C)hire more employees.
• D)buy more capital.

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Definitions:

Required Rate of Return

The minimum annual percentage return a investor expects to achieve from an investment, considering the risk involved.

Simple Rate of Return

A method of evaluating the financial performance of an investment by dividing annual incremental operating income by initial investment.

Cash Flows

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

Accounting Net Income

The profit of a company after all expenses and taxes have been deducted from revenues.