« previous next »

Author Question: True, false, or uncertain? Any firm that is not covering fixed costs should shut down in the short ... (Read 81 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?

The average older adult in the United States takes five prescription drugs per day. Half of these drugs contain a sedative. Alcohol should therefore be avoided by most senior citizens because of the dangerous interactions between alcohol and sedatives.

Did you know?

Allergies play a major part in the health of children. The most prevalent childhood allergies are milk, egg, soy, wheat, peanuts, tree nuts, and seafood.

Did you know?

Only 12 hours after an egg cell is fertilized by a sperm cell, the egg cell starts to divide. As it continues to divide, it moves along the fallopian tube toward the uterus at about 1 inch per day.

Did you know?

To prove that stomach ulcers were caused by bacteria and not by stress, a researcher consumed an entire laboratory beaker full of bacterial culture. After this, he did indeed develop stomach ulcers, and won the Nobel Prize for his discovery.

Did you know?

More than nineteen million Americans carry the factor V gene that causes blood clots, pulmonary embolism, and heart disease.

Early in the twentieth century, when malnutrition was common, companies such as this one advertised Early in the twentieth century, when malnutrition was common, companies such as this one advertised
Levels of Processing Affects Long-Term but not Short-Term Memory Levels of Processing Affects Long-Term but not Short-Term Memory
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
A company that makes environmental measuring devices has calculated their revenue and costs as ... A company that makes environmental measuring devices has calculated their revenue and costs as ...
Video: Introduction to filtration - filtrate formation and composition

For a complete list of videos, visit our video library