ECON312 Firms Shut Down Decision

$4.50

ECON312 Firms Shut Down Decision
Say you are the manager of a perfectly competitive firm selling a product…

SKU: ECON 312 Firms Shut Down Decision Categories: , Tags: , , ,

Description

ECON312 Firms Shut Down Decision

ECON312 Firms Shut Down Decision

Course Discussions Week 3 All Students Posts – 44 Pages 

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?

If you are the manager of this company, you cannot know whether to shut down simply based on the factors that you ask about in this question.  The total revenue and total costs are not the numbers that are used to determine whether to shut a business down.  Instead, you need to determine what your marginal revenue is and what your average variable costs are.  If your MR is less than your AVC, then you shut down.  If your MR is greater than your AVC, you keep producing, regardless of whether your total revenues are lower than your total costs…