Which of the following statements is definitely true when priceis less than average total cost...

Which of the following statements is definitely true when price is less than average total cost for a firm producing the profit-maximizing level of output in the short run?

a.The firm will be earning negative total revenue.

b.The firm is running a loss in an accounting sense, so that total revenue is less than total explicit costs.

c. The firm is incurring an economic loss.

d.The firm will minimize its losses by shutting down.

Solutions

Expert Solution

Answer is C. Firm is incurring economic loss.

Because if average total cost is higher then price, it means total cost are greater than total revenue and difference between total revenue and total cost is the economic losses firm is facing.

Total revenue will be positive and accounting profit is calculated when explicit cost are given seperately and shut down decision depends on average variable cost which is not given here.

Rahul Sunny answered 2 years ago

Next > < Previous

Related Solutions

When the Price (marginal revenue) is less that Average Total Cost, but more than Average Variable Cost

When the Price (marginal revenue) is less that Average Total Cost, but more than Average Variable Cost, the firm is making ___________ (positive profit/negative profit) and should __________ (shut down/stay in business).

If the price is less than the average total cost but higher than the average variable...

If the price is less than the average total cost but higher than the average variable cost, then the firm is making a _________. a. loss and is making a negative contribution to fixed costs b. loss but will continue to produce in the short-run c. loss and will shut down in the short-run d. profit What two types of market scopes did Michael Porter use in developing his generic strategies model? Broad and narrow. Cost leadership and focus. Benefit...

If the price was slightly less than average total cost, but still greater than average variable...

If the price was slightly less than average total cost, but still greater than average variable cost, then the profit-maximizing, monopolistically competitive firm would Answer choices: produce an output amount that corresponded to the place where marginal cost equals marginal revenue and break even. produce an output amount where marginal cost equals marginal revenue and make a small profit. continue to produce an output amount that corresponded to the place where marginal cost equals marginal revenue, but make a small...

1. We know that average _ cost is when marginal cost is less than average...

1. We know that average _______ cost is ______ when marginal cost is less than average total cost. variable; rising fixed; rising total; falling total; rising 2. In the short run, if a company shuts down, which of the following will happen? Total revenue will be zero, but total fixed costs will still have to be paid. Total revenue will be zero, and total costs will be zero. Total economic profit will be zero, and total costs will be positive....

If price is less than a perfectly competitive firm's average total cost, the firm will continue...

If price is less than a perfectly competitive firm's average total cost, the firm will continue to produce if price is greater than average variable cost. the firm will shut down. the firm will exit the industry in the short run. the firm will continue to produce as long as price is greater than average fixed cost.

True or false?(1 point each) When marginal product is less than average product, average product is...

True or false?(1 point each) When marginal product is less than average product, average product is decreasing. In the long run, fixed costs are small. Marginal cost is the increase in total cost that results from a one-unit increase in a variable input. The vertical distance between the average variable cost curve and the average total cost curve equals average fixed cost. Average fixed costs are constant. Perfectly competitive firms are price takers. In the long run, perfectly competitive firms...

Which of the following statements is false? (a) If the payback period is less than the...

Which of the following statements is false? (a) If the payback period is less than the maximum acceptable payback period, accept the project. (b) If the payback period is greater than the maximum acceptable payback period, reject the project. (c) If the payback period is less than the maximum acceptable payback period, reject the project (d) Two of the above. What is the payback period for TangAsha company’s new project if its initial after tax cost is P10,000,000 and it...

If average revenue is less than average cost there will be a negative cash flow and...

If average revenue is less than average cost there will be a negative cash flow and the firm will be forced to shutdown. Is this correct? Why or why not?

17. Claim: The average cost to repair washing machine A is less than the average cost...

17. Claim: The average cost to repair washing machine A is less than the average cost to repair washing machine B. Test at α = 0.1 Data: A sample of 10 washing machine A’s have an average repair cost of $208 and a standard deviation of $25. A sample of 15 washing machine B’s have an average repair cost of $221 and a standard deviation of $29. Assume that the population standard deviations for repair costs are the same for...

Which of the following statements about the total debt to total assets ratio is NOT true?...

Which of the following statements about the total debt to total assets ratio is NOT true? The debt ratio is calculated by dividing a company's total liability by its total assets. "The higher the total debt to total asset ratio, the greater the financial risk." "If a company's debt to asset ratio is less than 0.5, most of its assets are financed through debt." A highly leveraged company could be in danger if its creditors demand repayment.

Subjects