When Price Is Greater Than Both Marginal Cost and Average

question 347

Multiple Choice

When price is greater than both marginal cost and average variable cost, the perfectly competitive firm

• A) is maximizing economic profit.
• B) should increase its level of output.
• C) should reduce its level of output.
• D) should stop production.

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Definitions:

Compensatory Stock Option

An employee benefit option that gives the right to purchase company stock at a discount.

Compensation Expense

The total amount of cash and non-cash payments that businesses must make to employees, including salaries, bonuses, and benefits.

Paid-in Capital

The total amount of cash and other assets received from shareholders in exchange for stock, including amounts above the nominal value (or par value) of the shares.

Historical Cost Principle

An accounting principle that states assets should be recorded and reported at their original purchase price.