Below the short-run shutdown price, the firm
A) is earning positive economic profits.
B) is earning negative economic profits.
C) is making a normal rate of return on its capital investment.
D) may be earning a positive or negative economic profits depending upon costs.
Answer: B
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When an economy produces at its allocatively efficient production point
A) scarcity is not a problem. B) resources are not limited. C) a society can increase the production of all goods. D) a society can increase the production of one good only by decreasing the production of some other good that is valued more highly.
The income effect of a higher real wage on the quantity of labor supply is the
A) idea that workers feel psychologically wealthier when wages are higher, so they work more. B) effect that income must rise when wages rise. C) tendency of workers to supply more labor in response to becoming wealthier. D) tendency of workers to supply less labor in response to becoming wealthier.
In dollar terms the most important of all forms of property and casualty insurance is
A) automobile liability insurance. B) home owners insurance. C) medical malpractice insurance. D) fire insurance.
Assume the long-term nominal interest rate is 7% and the expected inflation rate is 3%
If the Fed increases the money supply and as a result, the expected inflation rate increases to 5%, then based on the Fisher effect, the long-term real interest rate will A) remain at 4%. B) increase to 6%. C) fall to 3%. D) increase to 9%.