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.

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 2 years ago

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