Suppose the Price of an Item in a Perfectly Competitive

question 291

Multiple Choice

Suppose the price of an item in a perfectly competitive market is $3. For a firm in this market, MC = MR at an output of 100 units. The average total cost at this output level is $4 per unit, and TVC is $80. We may conclude that

• A) the firm should shut down because TC > TR.
• B) the firm should continue to produce because P>AVC.
• C) the firm should shut down because its TFC is $320 and its TC is $400.
• D) the firm should shut down because other firms will enter the industry as the market is perfectly competitive.

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Definitions:

Net Income

Signifies the net income of a corporation following the subtraction of all costs and tax obligations from the overall revenue.

Inventory Turnover

A measure showing the frequency at which a company's inventory is sold and replenished within a given timeframe.

Days in Inventory

A financial metric that calculates the average number of days a company holds inventory before it is sold.

Consigned Goods

Items that are given to a third party to sell but remain the property of the seller until sold.