Asked by Jacob Andersen on Jul 30, 2024
Verified
The accountants hired by Forever Fitness have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000. Because of this information, in the short run, Forever Fitness should
A) shut down because staying open would be more expensive.
B) lower their prices to increase their profits.
C) stay open because shutting down would be more expensive.
D) stay open because the firm is making an economic profit.
Total Variable Cost
The total of all expenses that vary with the level of output or production, including costs for materials and labor.
Total Fixed Cost
The sum of all costs that remain constant regardless of the level of production or output.
Total Revenue
The overall amount of money generated by a firm from its sales activities before any expenses are subtracted.
- Analyze the economic return within different market settings.
- Assess the situations in which a competitive market firm experiences positive, no, or negative economic profitability.
Verified Answer
JK
Jacob KunzeJul 31, 2024
Final Answer :
A
Explanation :
Forever Fitness should shut down in the short run because their total revenue ($125,000) is less than their total variable cost ($130,000), meaning they cannot cover their variable costs, let alone make a profit. Staying open would lead to greater losses.
Learning Objectives
- Analyze the economic return within different market settings.
- Assess the situations in which a competitive market firm experiences positive, no, or negative economic profitability.