Assume two firms have the same total costs of production. Firm A's average variable cost if $5 per unit and firm B's average variable cost is $7 . Both firms have an average total cost of $8
If the current market price is $6 and remains unchanged what action will both firms take in the short run and the long run?
Firm B will shut down in the short run because it is suffering operating losses. If the product price doesn't reach $8 or better it will exit the industry. Firm A will continue to produce in the short run because it is making an operating profit. However, if market price does not rise to $8 or better it too will exit in the long run.
You might also like to view...
If the institutions in an economy change from being extractive to inclusive, the return-to-entrepreneurship schedule in the economy will:
A) become vertical. B) shift leftward. C) become horizontal. D) shift rightward.
A rapid increase in the price of oil will tend to
A) shift long-run aggregate supply to the left. B) shift aggregate demand to the right. C) shift long-run aggregate supply to the right. D) shift short-run aggregate supply to the left.
Refer to Figure 18-2. If the government imposes an excise tax of $1.00 on every unit sold, what is the size of the deadweight loss, if there is any?
A) the area adc if the supply curve is S0 and the area bec if the supply curve is S1. B) the area becf under either supply curve. C) the area afcd if the supply curve is S0 and the area bfce if the supply curve is S1. D) There is no deadweight loss; revenue raised is used to fund government projects.
In the Keynesian system, an increase in the money stock would
a. increase the interest rate, which, in turn, would increase aggregate demand and income. b. decrease the interest rate, which, in turn, would decrease aggregate demand and income. c. decrease the interest rate, which, in turn, would increase aggregate demand and income. d. decrease the interest rate but would have no effect on aggregate demand and income.