Even if a firm is optimistic about the future, why should it shut down if it cannot cover its variable cost? If it does shut down, are there ramifications not mentioned in the textbook?
If a firm cannot cover its variable cost, this implies revenue insufficient to pay variable expenses, such as employee wages, raw materials, and electricity. By shutting down, you lose less money (reflected in your fixed cost) than by continuing to operate. When the situation improves (price rises), you can again begin production and sales. Even if start-up costs are zero, you may permanently lose customers who will have switched to your competitors. Since firms sell all of their output in pure competition, this is not significant, but it may be a consideration in other market structures, especially where brand loyalty is important.
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Explain the differences between "human capital," "financial capital," and "capital."
What will be an ideal response?
According to Scenario 4-1, country A has net exports of:
a. $18 million. b. $8 million. c. $13 million. d. $9 million. e. $6 million.
If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are:
A. substitutes. B. complements. C. normal goods. D. inferior goods.
According to the adaptive rationality standard, one reason people might rationally choose to have preferences that are not narrowly self-interested is that:
A. they have no other choice. B. doing so could help them solve commitment problems. C. even rational people sometimes make irrational choices. D. they do not know how to act in their own self-interest.