When should a firm shut down? When should a firm go out of business?
What will be an ideal response?
A firm should shut down when the price per unit of output sold drops below the average variable cost per unit produced. The firm can shut down or stop producing in the short run, but it can still stay in business. In the long run, if the market price remains below the firm's shutdown point, then its owners should sell the firm's assets and go out of business.
You might also like to view...
If a bank's deposits at the Fed increase by $10 million, then
A) both the bank's liabilities and the Fed's liabilities increase by $10 million. B) the bank's assets increase by $10 million, but there is no change at the Fed since it does not really have assets or liabilities. C) the bank's assets increase by $10 million and the Fed's liabilities increase by $10 million. D) both the bank's assets and the Fed's assets increase by $10 million.
If the government set a price floor at $18
A. there would be a temporary surplus, then prices would fall to equilibrium.
B. the price floor would not have any effect on this market.
C. then quantity demanded would be greater than quantity supplied.
D. there would be a permanent surplus, at least until the price floor was lifted.
Attempts to bypass price rationing in the market
A. are easily administered. B. always fail. C. are costly. D. are efficient.
Suppose that good X is a luxury and that good Y is a necessity. Which good would you expect to have more price elastic demand?