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3. Satsuma Lt. is a Japanese company that makes tires. It has entered the U.S. market...

3. Satsuma Lt. is a Japanese company that makes tires. It has entered the U.S. market recently Its fixed cost per tire is $25. Its variable cost per tire is $80. The short-run market price for its tires is $95. Given that it's operating at a loss, should Satsuma Ltd. stay in business or shoudl it shut down and leave the U.S. market?

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Answer #1

Answer 3 : Fixed cost = $25

Variable cost =$80

Price of the product = $95

In short run scanerio, the firm main objective is to cover variable cost . As satsuna Ltd has entered new in US market. At this time there main motive is to recover variable cost from its price. So from my point of view it is better to stay in the business as they recovered variable cost which is $80 less than the price i.e $95 that satsuma Ltd achived . In short run scanerio , the satsuma should stay in the business.

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