Figure 14-6 Suppose a Firm Operating in a Competitive Market Has the Has

question 206

Multiple Choice

Figure 14-6
Suppose a firm operating in a competitive market has the following cost curves:
-Refer to Figure 14-6. Firms will earn positive profits in the short run if the market price

• A)is less than P1.
• B)is greater than P1 but less than P3.
• C)equals P3.
• D)exceeds P3.

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Definitions:

Discounted Cash Flow Technique

Considers both the estimated total net cash flows from the investment and the time value of money.

Net Present Value Method

A method used in capital budgeting to evaluate the profitability of an investment or project, by calculating the difference between the present value of cash inflows and outflows.

Internal Rate Of Return Method

A method of calculating the profitability of potential investments where the net present value of all cash flows equals zero.

Capital Budgeting

Capital Budgeting is the process by which organizations evaluate potential major projects or investments to determine their value and allocation of capital.