When Fixed Costs Are High Relative to Variable Costs, Producers

question 214

Multiple Choice

When fixed costs are high relative to variable costs, producers will tend to

• A) continue producing in the short run even if they incur some losses.
• B) quickly shut down in the short run whenever they see losses.
• C) only produce in the short run as long as the product price is lower than their average variable costs.
• D) produce in the short run even if the product price is lower than their average fixed costs.

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Definitions:

Processing Department

A unit within a manufacturing facility where a specific type of production activity takes place.

Journal Entry

A record of the financial transactions entered into the accounting ledger of a business.

Production Process

The series of steps or actions taken to convert raw materials into finished goods or services.

Units Started

The number of units of product that have entered the production process but may not yet be completed.