How Do Companies Deal with Unexpected Shifts in Quantity Demanded

question 185

Essay

How do companies deal with unexpected shifts in quantity demanded when prices are sticky?

Identify and apply the profitability index to rank investment projects.

Calculate the net present value (NPV) of an investment to determine its financial viability.

Explain the concept of the simple rate of return and its use in evaluating investment performance.

Distinguish between cash operating costs and non-operating costs in investment appraisal.

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Definitions:

Long Run

A period in economic analysis during which all factors of production and costs are variable, allowing for full industry adjustment.

ATC

Average Total Cost, which is the total cost of production divided by the number of goods produced, representing the cost per unit of output.

Break-Even Point

The point where total costs equal total revenue, meaning no profit or loss is incurred.

MC

Stands for Marginal Cost, which is the cost of producing one additional unit of a good or service.