Question

A case study answering these two questions

1. What consideration must the restaurant owner weigh in whether to open for lunch?

2. What is the role of fixed cost in the owner's decision?

Answer 1

Ans .1

If the owner is able to pay off its variaale cost associated with it and make profit then only he should consider to open for lunch.

Variable cost like salaries of employess , ingrediant cost to make the food etc. and if its not met in the short run then the shop might shut down. and vice versa.

Ans .2 .

Fixed Cost are not considered in the decision making process in the short run for the resturant.Because only in short run the varibale cost are taken into consideration and to check if his able to satisfy the variable cost, then only he will be able to run the business in the short run. And in case of long run, here all the cost are variable cost and if the owners fails to meet or recover the total cost , then the owner will have no choice rather than leave the market and vice versa.