"A perfectly competitive firm will shut down if the price falls below its average total cost." Do you agree? Explain
What will be an ideal response?
A perfectly competitive firm will not shut down as far as the price is above its average variable cost. If the price is below the ATC but above the AVC, the firm can cover part of its fixed cost if it continues to operate. If the firm shuts down, it incurs an economic loss equal to total fixed cost. So as long as the price is above the AVC, the firm will have a smaller economic loss if it continues to operate than if it shuts down.
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The Consumer Price Index is based on the price level of a basket of goods and services that represents the purchases of an average consumer
a. True b. False Indicate whether the statement is true or false
Which of the following is not an argument against inflation targeting?
A) Inflation targeting reduces the flexibility of the Fed to pursue other policy goals. B) Inflation targeting assumes that the Fed can accurately forecast future inflation rates. C) Inflation targeting makes monetary policy ineffective because the targets are publicly announced. D) Inflation targeting holds the Fed accountable for an inflation goal, but may make it less likely the Fed will achieve other goals.