Should company close down the business if suffering a loss?
The firm currently uses 70,000 workers to produce 300,000 units of output per day. The daily wage (per worker) is $100, and the price of the firm’s output is $30. The cost of other variable inputs is $500,000 per day. Although you don’t know the firm’s fixed cost, you know that it is high enough that the firm’s total costs exceed its total revenue. Should this company close down its business or continue taking a loss. Why or Why not?
Answer:
The firm will only shut down the firm when revenue generated are insufficient to cover variable cost. Although a firm may be generating revenue, but operating at a net loss (meaning TC >TR) the firm can still go on in operations, as long as the revenues can pay off the variable cost, but not necessarily the fixed cost or total cost.
close for big loss
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Answer:
The firm will only shut down the firm when revenue generated are insufficient to cover variable cost. Although a firm may be generating revenue, but operating at a net loss (meaning TC >TR) the firm can still go on in operations, as long as the revenues can pay off the variable cost, but not necessarily the fixed cost or total cost.
close for big loss
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