CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

A firm should cease to do business when ______.
A. price < average variable cost
B. price < marginal cost
C. price < average total cost
Explanation: A firm should cease to do business when P < AVC. In this case the company is not even making incremental revenue for each additional product sold. When AVC < P < ATC, the firm - while not profitable - will be making money above its variable costs. If P < MC or ATC < MC, the firm may be profitable but is not maximizing profit potential.

User Contributed Comments 2

User Comment
0000 You should cease to business in the short run AND long run when price < AVC and cease to business in long run when price < ATC.
farhan92 by cease to do business they don't mean shut down?
You need to log in first to add your comment.