How can a firm stay in business if it makes no economic profit in the long...

How can a firm stay in business if it makes no economic profit in the long run? Explain.

When is it optimal for a firm to shut down? Explain the circumstances and time horizon relating to this decision.

Can you please answer them one by one and write legibly and go step by step please and thank you

Expert Solution

a) The firm will stay in business even if it is making no economic profit because when it makes no economic profit in the long run, it is still able to recover its total cost which includes its fixed and variable costs.As the fixed costs are regarded as sunk costs, when it is able to recover its total costs, it is considered making a normal profit where total revenue = total costs so it has no incentive to leave the market when it is able to recover all of the costs where the price being charged for goods is = minimum of average costs.

b)IT is optimal for the firm to shut down when the price charged for the goods falls below the minimum average variable cost or is below its shutdown point.The firm will only produce if it is able to recover its variable costs which only matters as the fixed costs are sunk costs.If it is not able to recover the variable costs of running the business such as wages paid to staff then it is better to shut down.

Rahul Sunny answered 2 years ago

QUESTION 13 In the short run, a perfectly competitive firm will stay in business as long...

QUESTION 13 In the short run, a perfectly competitive firm will stay in business as long as: Price equals average revenue. marginal revenue is greater than marginal cost. price exceeds average variable cost. price is less than average variable cost. QUESTION 14 Suppose that price is below the minimum average total cost (ATC) but above the minimum average variable cost (AVC), and the market price is expected to rise at least to ATC in the near future. In the short...

If Van's goal is to maximize his economic profit, he (should or should not) stay in the boat business.

2. Definition of economic costs Van lives in Chicago and runs a business that sells boats. In an average year, he receives $704,000 from selling boats. Of this sales revenue, he must pay the manufacturer a wholesale cost of $404,000; he also pays wages and utility bills totaling $286,000. He owns his showroom; if he chooses to rent it out, he will receive $3,000 in rent per year. Assume that the value of this showroom does not depreciate over the year....

if a firm makes negative economic profit, then the firm A) has total revenues greater than...

if a firm makes negative economic profit, then the firm A) has total revenues greater than its economic costs B) can be earned positive accounting profit C) must have no fixed costs D) must shut down immediately

What are the economic consequences of obesity, how business can profit or lose money from it?...

What are the economic consequences of obesity, how business can profit or lose money from it? Need to write an essay

a)A firm operating under perfect completion is earning an economic profit of K20m, in a long...

a)A firm operating under perfect completion is earning an economic profit of K20m, in a long run, is this a feasible outcome and why? b) what are the implications of a having a kinked demand curve under oligopoly markets c) what is the key different between perfect competition and monopolistic competition?

If (perfectly) competitive firms are price takers, how can such a firm make any economic profit...

If (perfectly) competitive firms are price takers, how can such a firm make any economic profit in the short run? Can such a firm continue to make economic profit in the long run/ Why/how/why not? Explain.

What makes a business successful in monopolistic competition? Provide a short-run profit graph and long-run profit...

What makes a business successful in monopolistic competition? Provide a short-run profit graph and long-run profit graph.

When a purely competitive firm earns a normal economic total profit in the long run, it...

When a purely competitive firm earns a normal economic total profit in the long run, it produces a quantity Q of its final product where $Price = $Marginal Cost and also $Price = Minimum Average Total Cost. Why are these price and cost equalities considered to be beneficial for the entire economy?

How can firms achieve corporate advantage? Is it possible for a firm to stay abreast of...

How can firms achieve corporate advantage? Is it possible for a firm to stay abreast of important developments in the marketplace while at the same time appealing to multiple stakeholders?

Explain why a monopolistically competitive firm earns zero economic profit in the long run and show...

Explain why a monopolistically competitive firm earns zero economic profit in the long run and show graphically how they charge a higher price then perfectly competitive firms and are not cost efficient.

Question