![]() ![]() If the firm decides to operate, its marginal costs for hiring yoga teachers is $15,000 for the month. Therefore when a firm is experiencing losses, it must face a question: should it continue producing or should it shut down?Īs an example, consider the situation of the Yoga Center, which has signed a contract to rent space that costs $10,000 per month. As a result, if the firm produces a quantity of zero, it would still make losses because it would still need to pay for its fixed costs. The possibility that a firm may earn losses raises a question: why can the firm not avoid losses by shutting down and not producing at all? The answer is that shutting down can reduce variable costs to zero, but in the short run, the firm has already committed to pay its fixed costs. Determine when a firm should continue producing in the short run or at which point it should shutdown. ![]()
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