What does the sign (positive/negative) of the cross elasticity of ...

[melly21297]

What does the sign (positive/negative) of the cross elasticity of demand tell us about the relationship between two goods?
 
  What will be an ideal response?

Question 2

Comment on the following statement: If a firm shuts down in the short run, it will earn zero economic profit.
 
  What will be an ideal response?

[maya.nigrin17@yahoo.com]

Answer to Question 1

The sign of the cross elasticity of demand reveals whether two goods are substitutes or compliments: The cross elasticity of demand is positive for substitutes and negative for complements.

Answer to Question 2

The statement is false. In the short run, the firm has fixed costs to pay. If it shuts down, its total revenue will be equal to 0 . Therefore, the firm will suffer a loss equal to its fixed costs.

[melly21297]

Thanks for the timely response, appreciate it

[xiazhe]

TYSM