If a firm shuts down, it A. will earn enough revenue to cover its variable costs but not all of its fixed costs. B. will produce nothing but must pay its fixed and variable costs. C. will suffer a loss equal to its fixed costs. D. will produce nothing but must pay its variable costs.

Question

Business

Valery

29 April, 06:44

If a firm shuts down, it A. will earn enough revenue to cover its variable costs but not all of its fixed costs. B. will produce nothing but must pay its fixed and variable costs. C. will suffer a loss equal to its fixed costs. D. will produce nothing but must pay its variable costs.

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Answers (1)

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Nikolai Skinner · Answer 1

The answer is: C) will suffer a loss equal to its fixed costs.

Explanation:

If a company shuts down its production temporarily (not permanently), it will stop receiving revenue from the goods it used to produce but at the same time will not be spending any money on variable costs. The company will suffer losses equivalent to its fixed costs (e. g. depreciation costs, rent, etc.).

A company decides to shut down its production when the revenue it receives from selling its products doesn't even cover their variable costs. That means it is losing money by producing its goods.