A Fixed Cost That the Firm Cannot Avoid If It

question 7

Multiple Choice

A fixed cost that the firm cannot avoid if it shuts down and produces zero output must be:

• A) An accounting cost
• B) A marginal cost
• C) An equilibrium cost
• D) A sunk cost

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Definitions:

Socially Efficient Quantity

The level of production or consumption of a good or service that results in the optimal allocation of resources, considering both private and social costs and benefits.

Profit-Maximizing Quantity

The level of production at which a company achieves its highest profit, where marginal cost equals marginal revenue.

Average Total Cost

The total cost divided by the quantity of output produced; it is the sum of average fixed costs and average variable costs.

Marginal Cost

The extra cost incurred when one more unit of a product or service is produced.