Question

Should a firm shut down if its revenue is R = $1,500 per week and: a....

Should a firm shut down if its revenue is R = $1,500 per week and: a. its variable cost is VC = $1,100 and its sunk fixed cost is F = $800? b. its variable cost is VC = $1,600 and its sunk fixed cost is F = $600? c. its variable cost is VC = $1,100 and its fixed cost is F = $1000 ($800 of which is avoidable if it shuts down?

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Answer #1

Revenue = $1,500

a) Variable cost = $1,100

Fixed cost = $800

Firm should continue operating because they are able to cover their complete variable cost as well as some part of their fixed cost.

b) Variable cost = $1,600

Fixed cost = $600

Firm should shut down because they are not able to cover neither fixed or variable cost.

c) Variable cost = $1,100

Fixed cost = $1,000

Firm should continue operating because they are able to cover their complete variable cost as well as some part of their fixed cost.

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