Shoe-a-holic Cathy started her own line of custom made, hand embellished wedding shoes. She opened up her own shop paid $2500 in fixed licensing fee. She used about $3000 in raw materials and made $3500 . At the end of the first month, Carly, her sister
looked at her financials and told her that she was losing money and should shut down. Cathy is heartbroken. As an economics guru, what would you advise her to do?
Carly is considering $2500 in fixed costs as a part of her calculations, which is why she advises Cathy to shut down. However, fixed costs should not be a part of the decision making in this case because they are sunk and no longer avoidable by stopping production. Even if Cathy shuts down, she cannot get any of the $2500 back. On the flip side, she is actually making a profit of $500 ($3500-$3000 . and therefore should not shut down.
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An increase in wages in the public sector is caused solely by increased labor productivity in that sector.
Answer the following statement true (T) or false (F)
Proper inflation accounting is necessary to measure the size of the real deficit because
A. as a lender, the government gains from inflation. B. otherwise, the deficit is understated in inflationary times. C. the government is a borrower that pays back dollars of less real value in inflationary times. D. interest payments tend to fall in inflationary times.