« previous next »

Author Question: True, false, or uncertain? Any firm that is not covering fixed costs should shut down in the short ... (Read 111 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?

Your heart beats over 36 million times a year.

Did you know?

It is widely believed that giving a daily oral dose of aspirin to heart attack patients improves their chances of survival because the aspirin blocks the formation of new blood clots.

Did you know?

In 2006, a generic antinausea drug named ondansetron was approved. It is used to stop nausea and vomiting associated with surgery, chemotherapy, and radiation therapy.

Did you know?

Hippocrates noted that blood separates into four differently colored liquids when removed from the body and examined: a pure red liquid mixed with white liquid material with a yellow-colored froth at the top and a black substance that settles underneath; he named these the four humors (for blood, phlegm, yellow bile, and black bile).

Did you know?

Inotropic therapy does not have a role in the treatment of most heart failure patients. These drugs can make patients feel and function better but usually do not lengthen the predicted length of their lives.

A fixed action pattern elicited by a sign stimulus. A fixed action pattern elicited by a sign stimulus.
Which is TRUE about the alternation of generations cycle that is diagramed above? Which is TRUE about the alternation of generations cycle that is diagramed above?
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 ...
Firm handshake Firm handshake
Midsagittal section indicating locations of true and false pelves Midsagittal section indicating locations of true and false pelves
Video: Simple and Double Sugar

For a complete list of videos, visit our video library