"A firm should shut down immediately when it earns zero economic profits." Do you agree or disagree? Explain your answer
What will be an ideal response?
Disagree. When a firm earns economic profits or breaks even, the price per unit of output sold still exceeds the average variable cost so that it is better off continuing to produce. The revenues in excess of variable costs can be used toward covering fixed costs. Only if the price per unit of output falls below the average variable cost that the firm should shut down.
You might also like to view...
In the above table, if the market is perfectly competitive and unregulated, at the equilibrium level of output, the marginal external benefit per unit is
A) zero. B) $20 per unit. C) $50 per unit. D) $70 per unit.
Explain why economists believe that an individual who commits a crime does so acting in his/her own self-interest
If there is initially a federal budget deficit, and taxes fall while transfer payments rise: a. there is an indeterminate effect on both AD and the budget deficit. b. AD increases and the budget deficit increases
c. AD increases and the budget deficit decreases. d. AD decreases and the budget deficit increases.
To help with motivation, long-term productivity, and retention, firms with internal labor markets tend to offer all of the following except
A. benchmark competitive wages. B. efficiency wages. C. pay based on job seniority. D. internally based promotion systems.