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3. According to the chapter reading, should a firm in the verge of shutting down still...

3. According to the chapter reading, should a firm in the verge of shutting down still risk it and remain in business. Justify your answer. chapter 8, in the text book Managerial economics and strategy, student value edition

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Answer #1

A firm can shut down if it is incurring losses but before taking that decision it should understand few things.

A firm can continue to operate in the market only if it's operating costs are less than its fixed costs. If that is the case the firm can cover those operational losses by using some techniques will help it reduce those operational costs and Eran profits.

A firm can shut down only when the market price of the product is less than the Average variable cost of producing the producing.

Yes the firm should still risk by being in business only if it's Price is greater than the average variable cost of that firm. Taking all these into consideration the firm owner should decide whether to quit or continue the business.

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