Question

Write your responses in complete sentences. Each answer should be two - three paragraphs (150 – 250 words) in length.

1. Explain the terms Short-Run Break-Even Price and Shut-Down Price. What we expect a firm to do when faced with each of these?

Answer 1

Shirt run breakeven price is price at which firms total revenues equal its total costs. At this point normal rate of return is achieved, just paying it for its implicit and explicit costs.

Shut down price occurs at points when average revenue is less than average variable costs.

To reduce such an event firms must optimise cost savings by mergers and acquisition, Divestment non core areas, hiving off assets which are non usable, synergy optimisation stake selling.

Thus firms need to operate differently and devise strategy which reduces debt and develrages balance sheet to generate free positive caah flows.