« previous next »

Author Question: True, false, or uncertain? Any firm that is not covering fixed costs should shut down in the short ... (Read 97 times)

NguyenJ

  • Hero Member
  • *****
  • Posts: 516
on: Jul 1, 2018
True, false, or uncertain? Any firm that is not covering fixed costs should shut down in the short run.
 
  Indicate whether the statement is true or false

Question 2

The initial price of a cup of coffee is 1, and at that price, 400 cups are demanded. If the price falls to 0.90, the quantity demanded will increase to 500.
 
  a. Calculate the (arc) price elasticity of demand for coffee.
  b. Based on your answer, is the demand for coffee elastic or inelastic?
  c. Based on your answer to a., if the price of coffee is increased by 10, what will happen to the revenues from coffee? Carefully explain how you know.


Chocorrol77

  • Sr. Member
  • ****
  • Posts: 313
Reply #1 on: Jul 1, 2018
Answer to Question 1

False. Fixed costs are sunk and should have no effect on short-run decisions. If a firm is not covering variable costs, it should shut down, because those costs are avoidable.

Answer to Question 2

a. Arc elasticity = -2.11
b. Elastic
c. Revenues will fall. Demand is elastic, and thus a 1 increase in price will lead to a greater percentage decrease in quantity demanded. Revenues fall because the price increase does not make up for the reduction in sales.


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

Many people have small pouches in their colons that bulge outward through weak spots. Each pouch is called a diverticulum. About 10% of Americans older than age 40 years have diverticulosis, which, when the pouches become infected or inflamed, is called diverticulitis. The main cause of diverticular disease is a low-fiber diet.

Did you know?

Nearly all drugs pass into human breast milk. How often a drug is taken influences the amount of drug that will pass into the milk. Medications taken 30 to 60 minutes before breastfeeding are likely to be at peak blood levels when the baby is nursing.

Did you know?

When blood is exposed to air, it clots. Heparin allows the blood to come in direct contact with air without clotting.

Did you know?

The senior population grows every year. Seniors older than 65 years of age now comprise more than 13% of the total population. However, women outlive men. In the 85-and-over age group, there are only 45 men to every 100 women.

Did you know?

Patients should never assume they are being given the appropriate drugs. They should make sure they know which drugs are being prescribed, and always double-check that the drugs received match the prescription.

An example of genetic homology: a comparison of a short amino acid sequence within the p53 protein f An example of genetic homology: a comparison of a short amino acid sequence within the p53 protein f
Energy costs of locomotion. Energy costs of locomotion.
True-color view of Mars seen through NASA's Hubble Space Telescope in 1999 True-color view of Mars seen through NASA's Hubble Space Telescope in 1999
Gently squeeze/milk the arm with twisting motion. With oil or lotion on hands, use gentle but firm ... Gently squeeze/milk the arm with twisting motion. With oil or lotion on hands, use gentle but firm ...
Reactions in assimilation of ammonia and major fates of the fixed nitrogen Reactions in assimilation of ammonia and major fates of the fixed nitrogen
The human X chromosome (left) and the Y chromosome (right). This false-color scanning electron micro The human X chromosome (left) and the Y chromosome (right). This false-color scanning electron micro
Video: Fractures Animation

For a complete list of videos, visit our video library