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Q. What do you mean by Capital Flows?
With free capital flows, this is a very unreasonable assumption. If we domestic interest rate increase against the foreign interest rates, capital will flow into our country that would drive down the domestic interest rate again.
Most reasonable models in that domestic interest rate is affected by foreign interest rates are more complicated. To understand such models, you should first understand models where this complication doesn't arise. Additionally predictions from models where domestic interest rate isn't affected by foreign interest rates are fairly similar to more realistic models which allows for capital flows.
If the firm‘s lowest average cost is $52 and the corresponding average variable cost is $26, what does it pay a perfectly competitive firm to do if • The market price is $51?
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