Using Figure 9.1, explain what a firm would do in the short run if the market price of its product dropped below P1
What will be an ideal response?
The firm would shut down since it would be suffering an operating loss. For the firm to remain in business in the short run the price must be equal to or greater than the average variable cost.
You might also like to view...
To maintain a fixed exchange rate via intervention in the markets, a government should:
a. be ready to crack down on illegal traders. b. be ready to buy the home currency with foreign currency reserves when the home currency's value declines. c. be ready to sell the home currency when the home currency's value declines. d. be ready to borrow funds from international banks when the home currency's value declines.
The income elasticity of demand for an addictive substance is always positive
a. True b. False Indicate whether the statement is true or false