What is the difference between "shutting down temporarily" and "exiting the industry"?
What will be an ideal response?
The difference between the two has to do with fixed costs. In the short run a firm cannot avoid its fixed costs. When price falls so low that the firm can no longer cover its variable costs of production with the revenue it earns from selling its product it should shut down temporarily and wait for economic conditions to improve. In the long run, all costs are variable. If total revenue cannot cover all costs the firm will exit the industry.
You might also like to view...
Use the diagram of two product supply curves to answer the following question.
The diagram indicates that
A. over range Q1Q2 price elasticity of supply is the same for the two curves. B. over range Q1Q2 price elasticity of supply is greater for S2 than for S1. C. over range Q1Q2 price elasticity of supply is greater for S1 than for S2. D. not enough information is given to compare price elasticities.
Both Keynesians and supply-siders believe that tax cuts
a. will increase income by increasing aggregate supply. b. will increase income by increasing aggregate demand. c. will increase income but for different reasons. d. will increase income in the Keynesian model but decrease income in the Supply-side model.
Arrange the following goods from least to most elastic, explaining your ordering: gasoline, Exxon gas, Exxon gas at a particular gas station
If the demand in a perfectly competitive market decreases, the price will:
A. temporarily increase. B. increase permanently. C. temporarily decrease. D. decrease permanently.