Asked by Michael Byars on Jul 08, 2024
Verified
If variable cost is $15 million,fixed cost is $14 million,and total revenues are $13 million,in the short run the firm will _____ and in the long run the firm will ____.
A) shut down;go out of business
B) shut down;stay in business
C) operate;go out of business
D) operate;stay in business
Variable Cost
Costs that change in proportion to the level of output or activity, such as materials and labor used in production.
Fixed Cost
A constant expense that does not change with the level of production or sales.
Total Revenues
The complete amount of income generated by a company or organization before any expenses are deducted.
- Comprehend the circumstances in which a business should maintain its activities or cease operations in the short term.
Verified Answer
SM
Shavon MccoyJul 10, 2024
Final Answer :
A
Explanation :
In the short run, if total revenues do not cover variable costs, the firm should shut down to minimize losses. Here, since total revenues ($13 million) are less than variable costs ($15 million), the firm should shut down in the short run. In the long run, if total revenues do not cover the sum of variable and fixed costs ($15 million + $14 million = $29 million), the firm cannot cover its total costs and will go out of business.
Learning Objectives
- Comprehend the circumstances in which a business should maintain its activities or cease operations in the short term.