What is the difference between "shutting down temporarily" and "exiting the industry"?
What will be an ideal response?
The difference between the two has to do with fixed costs. In the short run a firm cannot avoid its fixed costs. When price falls so low that the firm can no longer cover its variable costs of production with the revenue it earns from selling its product it should shut down temporarily and wait for economic conditions to improve. In the long run, all costs are variable. If total revenue cannot cover all costs the firm will exit the industry.
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Under perfect capital mobility, an increase in world interest rates will
a. increase income and reduce domestic interest rates. b. increase income. c. increase income and lead to a balance of payment deficit. d. increase income and lead to a balance of payment surplus.
The equilibrium GDP (=Y) in the economy is:
Answer the question on the basis of the following information for a private open economy. The letters Y, C, I g , X, and M stand for GDP, consumption, gross investment, exports, and imports respectively. Figures are in billions of dollars.
A. $200.
B. $245.
C. $320.
D. $350.