In the Standard Model of Pure Competition, a Profit-Maximizing Firm

question 27

Multiple Choice

In the standard model of pure competition, a profit-maximizing firm will shut down in the short run if

• A) marginal cost is greater than average revenue.
• B) average cost is greater than average revenue.
• C) average fixed cost is greater than average revenue.
• D) total revenue is less than total variable cost.

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Definitions:

Stock Price

The cost of purchasing a share of a company, which fluctuates based on supply and demand, company performance, and market conditions.

American Call Option

A type of options contract that gives the holder the right, but not the obligation, to buy a specified asset at a specified price on or before a specified date.

Risk-Free Interest Rate

The rate of return on an investment with no risk of financial loss, typically represented by the yield on government securities.

Exercise Price

The price at which an option holder can buy (call) or sell (put) the underlying asset.