Draw a graph showing the typical competitive firm losing money but continuing to operate. Explain why the firm continues to operate rather than shut down.

What will be an ideal response?


Figure 10-10 shows price (= MR) above minimum AVC but below minimum AC. The firm is losing money but less money than if it shuts down. Since price exceeds AVC, it is covering all its variable costs and has funds left over, which can cover a portion of fixed cost. In the short run if the firm shuts down, it loses all its fixed cost.

Figure 10-10

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Economics

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__________ argue that any exogenous decrease in investment spending would be countered automatically by either increased consumption or interest-sensitive investment spending

A) Monetarists B) Keynesians C) Classical economists D) None of the above.

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In a developing economy, scarcity of capital may have more to do with a lack of incentive for citizens to save and invest productively than with any absolute scarcity of income available for capital accumulation.

Answer the following statement true (T) or false (F)

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In the economic way of thinking, an example of "capital" might include

A) literacy. B) natural resources. C) knowledge. D) stable rules of the game. E) all of the above.

Economics

If the price elasticity of demand for apples is greater than 1, an increase in apple prices will

A) raise total revenue. B) lower total revenue. C) not affect total revenue. D) either raise or lower total revenue, but it is impossible to determine which.

Economics