COST ACCOUNTING
INTRODUCTION TO COST ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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fixed costs are greater than sales
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selling price is less than average total cost per unit.
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selling price is lower than variable cost per unit.
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fixed cost per unit is greater than variable cost per unit.
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Detailed explanation-1: -If the price that a firm charges is higher than its average cost of production for that quantity produced, then the firm will earn profits. Conversely, if the price that a firm charges is lower than its average cost of production, the firm will suffer losses.
Detailed explanation-2: -When the marginal cost is less than the average cost, the average cost falls. When the marginal cost is greater than the average cost, the average cost rises, and the two curves are equal at the point of intersection P.
Detailed explanation-3: -If the market price is below average cost at the profit-maximizing quantity of output, then the firm is making losses. If the market price is equal to average cost at the profit-maximizing level of output, then the firm is making zero profits.
Detailed explanation-4: -A firm would choose to shut down if the price of its output is below average variable cost at the profit-maximizing level of output (or, more generally if it sells at multiple prices, its average revenue is less than AVC).