Even if a firm is optimistic about the future, why should it shut down if it cannot cover its variable cost? If it does shut down, are there ramifications not mentioned in the textbook?
If a firm cannot cover its variable cost, this implies revenue insufficient to pay variable expenses, such as employee wages, raw materials, and electricity. By shutting down, you lose less money (reflected in your fixed cost) than by continuing to operate. When the situation improves (price rises), you can again begin production and sales. Even if start-up costs are zero, you may permanently lose customers who will have switched to your competitors. Since firms sell all of their output in pure competition, this is not significant, but it may be a consideration in other market structures, especially where brand loyalty is important.
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If the automobile workers' union successfully negotiates a wage increase for its members, how does the wage hike affect the supply of automobiles?
A) The supply increases. B) The supply decreases. C) The quantity supplied increases. D) The quantity supplied decreases. E) Both answers B and D are correct.
Which of the following is an example of consumption?
a. The City of Milwaukee pays a construction company to repair an expressway. b. Ralf buys a lawnmower to use for his landscaping business. c. Rayana pays a landscaper to design a garden for her backyard. d. The Girder Construction Co. buys a crane for a skyscraper project.