Are the terms "shutdown" and "exit" synonymous? What is the optimal shutdown rule for a firm?
What will be an ideal response?
No, the terms "shutdown" and "exit" are not synonymous. Shutdown refers to a short-run decision to not produce anything during a specific period of time. When a firm shuts down, it still incurs its fixed costs. On the other hand, exit refers to a long-run decision by a firm to leave the market. The optimal shutdown rule for a firm suggests that a firm should shut down if the price of the good it produces falls below its average variable cost. In situations, where the price is less than the average variable cost, for every unit of a good that the firm sells, it is paying its variable inputs more than what it is receiving from the sale of the good. As a result, the firm would lose more than the fixed cost that it would lose by shutting down—it would also lose a portion of the variable cost.
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An important problem facing the Fed is that
A) the goals for economic growth and price stability may conflict in the short run. B) it lost effective control over the monetary base. C) it has been given responsibility for meeting policy goals, but true control over monetary policy remains with Congress. D) it has been given responsibility for meeting policy goals, but true control over monetary policy remains with the President.
An increase in the marginal propensity to hold money
a. results in an fall in the interest rate and a decline in income. b. raises the interest rate and lowers income. c. results in a fall in the interest rate and a rise in income. d. raises both the interest rate and income.