Hypothetical question
Say you are the manager of a perfectly competitive firm
selling a product. Your business is making a loss because total revenue is less
than total costs. What would you do--shut down or continue to operate? Use
hypothetical numbers to explain. Information you need to provide include--state
the product you are selling, the price of the product, the quantity of the
product you produce, fixed costs, total cost, figure out total revenue, total
and average variable costs. Then go ahead and make your decision. Explain
carefully why it makes better sense to shut down rather than continue to
operate or to continue to operate rather than shut down, as the case may be.
How do fixed costs play a role in your analysis? What is the difference between
shutting down and going out of business?
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