Explain the circumstances under which a firm will produce output while incurring a short-run loss, and the circumstances under which it will shut down while incurring a short-run loss
If a firm can cover its variable costs by operating, then it will continue operating in the short run, that is,
until it can change the quantity of fixed resources it uses. If it covers its variable costs and has money left to
apply towards its fixed costs, then it is better off operating because the owner(s) spend less money. If it just
exactly covers its variable costs, but has no money left to apply towards its fixed costs, then it is no worse
off than if it shut down in the short run. However, if it can't cover its variable costs, then the owner(s)
incur both fixed costs and the uncovered component of the variable costs by operating. In this case, it is
preferable to shut down and only incur its fixed costs.
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If your income increases from $33,000 to $41,000 and your consumption increases from $8,000 to $12,000 . your marginal propensity to consume (MPC) is:
a. 0.2. b. 0.4. c. 0.5. d. 0.8. e. 1.0.
Economist A believes that the case for government is a strong one, but she doesn't always say, when it comes to negative externalities, that government can turn an inefficient market outcome into an efficient outcome. Which statement is economist A most likely to make?
A) If the tax placed on the activity that generates the negative externality is too large, we are not likely too move from inefficiency to efficiency. B) If the subsidy placed on the activity that generates the negative externality is too small, we are not likely to move from inefficiency to efficiency. C) If there is a free rider problem, then government cannot solve the problem of negative externalities. D) a and b E) none of the above