Question 01. For shutting down, a firm must consider which of the following condition. a. Revenue...

Question 01. For shutting down, a firm must consider which of the following condition.

a. Revenue and marginal cost

b. Revenue and total cost

c. Revenue and the variable cost.

d. Revenue and fixed cost

Question 02: My company's revenue is AED 1000 and fixed cost is AED 600, the variable cost is 1000. I have a loss of AED 600, Should I shut down the company? Justify your reasoning.

Solutions

Expert Solution

Sol 1 :

Option (c) is correct [ Revenue and the Variable cost]

Because shut down is the point where Marginal revenue is equal to the variable cost. And firm is not able to cover it's fixed cost.

Sol 2 : No, you should not shut down the company.

Although you have suffered a loss of AED 600 but you are able to cover variable cost of AED 1000. So ,if firm is able to cover the variable cost , he must continue its production in short run.

Rahul Sunny answered 1 year ago

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