If the Price Is Consistently Below Average Total Cost, Then

question 84

Multiple Choice

If the price is consistently below average total cost, then in the short run a perfectly competitive firm should:

• A) shut down.
• B) continue to produce to minimize losses.
• C) raise the price.
• D) There is not enough information given to answer this question.

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Definitions:

M&M Proposition I

A theory proposed by Modigliani and Miller that, in a perfect market, the value of a firm is unaffected by how it is financed, whether through debt or equity.

Capital Structure

The mix of different types of debt and equity a company uses to finance its operations.

Tax

Mandatory financial charges or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Bankruptcy Costs

Expenses associated with the bankruptcy process, including legal fees, court fees, and losses from selling assets at reduced prices, impacting the value recovered by creditors.