Figure 6-10 -Refer to Figure 6-10.Suppose for the Past 8 Years the 8

question 253

Multiple Choice

Figure 6-10
-Refer to Figure 6-10.Suppose for the past 8 years the firm has been producing Qd units per period using plant size ATC4.Now,following a permanent change in demand,it plans to cut production to Qc units.What will happen to its average cost of production?

• A) In the short run, its average cost falls from $47 to $41, and in the long run average cost falls even further to $37.
• B) In the short run, its average cost rises from $47 to $55, and in the long run average cost falls to $41.
• C) In the short run, its average cost falls from $47 to $37, and in the long run average cost rises to $41.
• D) In the short run, its average cost rises from $47 to $55, and in the long run average cost falls to $37.

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Definitions:

Net Realizable Value

The estimated selling price of goods minus the cost of completion and the costs necessary to make the sale.

Lower Of Cost

A accounting principle that mandates reporting the cost of inventory and other assets at the lower of their original cost or current market value.

Generally Accepted Accounting Principles

The standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as GAAP.

Lower Of Cost

An accounting principle requiring inventory to be recorded at the lower of its historical cost or market value.