Author Question: If the shut down rule, p < AVC, is the same in the short run and the long run, explain why the ... (Read 39 times)

sdfghj · **on:** Jul 1, 2018

If the shut down rule, p < AVC, is the same in the short run and the long run, explain why the shutdown prices may be different.

What will be an ideal response?

Question 2

One model in economics is the permanent income hypothesis, which basically states that a household's expenditures will not react to a change in income unless that change in income is viewed as being permanent.

How would you use this model to predict the expenditure patterns over the course of a year of a real estate agent who only sells homes during the months of April through July?

Melissahxx · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

In the short run there are fixed costs, but in the long run all costs are variable. In the long run the average variable cost is usually higher than in the short run.

Answer to Question 2

The agent will not consume all of her income when it is earned. She knows that her paychecks will not be coming during August through March. As a result, some of her summer income will be saved for use during those months.