« previous next »

Author Question: True, false, or uncertain? Any firm that is not covering fixed costs should shut down in the short ... (Read 79 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?

IgA antibodies protect body surfaces exposed to outside foreign substances. IgG antibodies are found in all body fluids. IgM antibodies are the first type of antibody made in response to an infection. IgE antibody levels are often high in people with allergies. IgD antibodies are found in tissues lining the abdomen and chest.

Did you know?

Most women experience menopause in their 50s. However, in 1994, an Italian woman gave birth to a baby boy when she was 61 years old.

Did you know?

Certain chemicals, after ingestion, can be converted by the body into cyanide. Most of these chemicals have been removed from the market, but some old nail polish remover, solvents, and plastics manufacturing solutions can contain these substances.

Did you know?

There are 60,000 miles of blood vessels in every adult human.

Did you know?

Disorders that may affect pharmacodynamics include genetic mutations, malnutrition, thyrotoxicosis, myasthenia gravis, Parkinson's disease, and certain forms of insulin-resistant diabetes mellitus.

A fixed action pattern as an example of innate behaviour. A fixed action pattern as an example of innate behaviour.
False Solomons Seal False Solomons Seal
Most lifts are equipped with short pad extensions that are often necessary to use to allow the pad ... Most lifts are equipped with short pad extensions that are often necessary to use to allow the pad ...
When the propane is shut off, the oxygen sensor should read below 200 mV. When the propane is shut off, the oxygen sensor should read below 200 mV.
A 31.1-g sample of Ne gas exerts a certain pressure in a container of fixed volume. What mass ... A 31.1-g sample of Ne gas exerts a certain pressure in a container of fixed volume. What mass ...
Benefits and costs of herbicide applications Benefits and costs of herbicide applications
Video: Endocytosis - pinocytosis, receptor mediated and Transcytosis

For a complete list of videos, visit our video library