Figure 11-5 -Refer to Figure 11-5.Suppose for the Past 8 Years the 8

question 147

Multiple Choice

Figure 11-5
-Refer to Figure 11-5.Suppose for the past 8 years the firm has been producing Q_d units per period using plant size ATC₄.Now,following a permanent change in demand,it plans to cut production to Q_c 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:

Specific Performance

An equitable remedy requiring exactly the performance that was specified in a contract. Usually granted only when money damages would be an inadequate remedy and the subject matter of the contract is unique, for example, real property.

Injunction

A court decree ordering a person to do or to refrain from doing a certain act.

Capital Asset Pricing Model

The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Nondiversifiable Risk

Risk that cannot be eliminated by investing in many projects or by holding the stocks of many companies.