If a firm operates at a loss, the loss is equal to TC - TR. If the firm shuts down instead, its loss is equal to FC. Given this, show that price must exceed AVC for the firm to operate at a loss and not shut down
What will be an ideal response?
The firm operates at a loss if TC - TR < FC. Adding TR - FC to both sides yields
VC < TR. Dividing by q yields AVC < p. That is, the firm will operate at a loss as long as
AVC < p.
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What will be an ideal response?
If parking spaces on a college campus are scarce, with quantity demanded during the "peak" hours, from 8 a.m. to 11 a.m., far greater than the number of spaces, an economist would propose as an efficient solution,
a. lowering the parking fees during those hours to compensate students for the longer search time. b. charging the same parking fees during all hours of the school day. c. raising parking fees during the peak hours to encourage some students to schedule classes during other hours when parking fees are lower. d. hiring more security guards to patrol for illegal parkers.
Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the quantity of real loanable funds per time period and the nominal value of the domestic currency in the context of the Three-Sector-Model?
a. The quantity of real loanable funds per time period rises, and nominal value of the domestic currency rises. b. The quantity of real loanable funds per time period falls, and nominal value of the domestic currency rises. c. The quantity of real loanable funds per time period rises, and nominal value of the domestic currency remains the same. d. The quantity of real loanable funds per time period rises, and nominal value of the domestic currency falls. e. There is not enough information to determine what happens to these two macroeconomic variables.
Which of the following is an injection into the economy?
a) Investment b) Savings c) Taxation d) Import spending