Why does it make sense for unprofitable firms to stay in business?
What will be an ideal response?
Even if a firm is losing money, it might still be better off producing. If the firm can recover its variable costs and some of its fixed costs by producing (that is, if the price it can receive exceeds the average variable cost of production), then it loses less by producing optimally than by shutting down and eating its fixed costs.
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The only two ways of dealing with the principal agent problem are the use of long-term contracts and monitoring
Indicate whether the statement is true or false
If the United States is a "net lender" abroad, ________. (Assume that the capital account is zero and net transfers are zero.)
A) the United States must be exporting less than it is importing B) net foreign investment must be negative C) national saving is greater than domestic investment D) net capital flows must be positive
A particularly attractive feature of the ________ is that it tells you what the market is predicting about future short-term interest rates by just looking at the slope of the yield curve
A) segmented markets theory B) expectations theory C) liquidity premium theory D) separable markets theory
If Jet Cruises chooses to Ad and Easy Sail then chooses to No Ad, Jet Cruises earns ________ million in net profit and Easy Sail earns ________ million.
Jet Cruises wants to prevent Easy Sail from entering the sailboat market. The above game tree illustrates the different strategies and corresponding payoffs for the two firms. Both Jet Cruises and Easy Sail have the same strategies of advertising (Ad) or not advertising (No Ad). The payoffs represent net profit in millions.
A) $4; $3 B) $2; $4 C) $5; $2 D) $10; $2