Would a profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short run?
What will be an ideal response?
A profit-maximizing firm will continue to operate even if price falls below average cost, as long as price is above average variable cost. This is because, even if price is less than average cost, as long as a part of the fixed cost is covered, it makes sense to continue production since the alternative is to shut down and incur the entire fixed cost. Thus, a profit-maximizing firm will shut down only when price falls below its average variable cost of production in the short run.
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In 2004, hurricanes destroyed a large portion of Florida's grapefruit crop. How did this affect the market price and market quantity of grapefruit?
What will be an ideal response?
According to the quantity theory of money, an excess quantity of money supplied will lead to
A) a reduction in spending and higher interest rates. B) a reduced level of real Gross Domestic Product (GDP). C) a higher level of employment. D) a higher price level.