Ted's Pancake Kitchen suffers a short-run loss. When should Ted decide to shut down rather than continue to produce?
A) if his Kitchen's revenue is less than its fixed costs
B) if his Kitchen's revenue is less than its total costs
C) if his Kitchen's revenue is less than its variable costs
D) if his Kitchen's revenue is less than its explicit costs
Question 2
Grace Makutsi finally bought a pair of blue shoes that she had been coveting for a long time. In less than a week she discovered that the shoes were uncomfortable. Grace went back to wearing her old pair and stashed away the new pair.
When asked by her boss, Mme. Ramotswe, why does she not simply give away the new pair, she said: But I paid so much for them. Grace's behavior
A) supports the endowment effect which states that ownership of an item makes it more valuable.
B) is rational because the more you pay for an item the more valuable it is.
C) ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give them away or not.
D) is rational: she should not discard a valuable item.
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