By shutting down, a firm A. stops receiving revenue and is stuck with its fixed costs. B. can avoid paying taxes on its previously earned profits. C. stops receiving revenue but continues to pay variable costs. D. avoids its sunk costs as well as its variable costs. g

Question

Business

Ibrahim Ewing

20 August, 22:37

By shutting down, a firm A. stops receiving revenue and is stuck with its fixed costs. B. can avoid paying taxes on its previously earned profits. C. stops receiving revenue but continues to pay variable costs. D. avoids its sunk costs as well as its variable costs. g

+1

Answers (1)

Know the Answer?

Makena Davies · Answer 1

option A

Explanation: A firm cannot avoid paying taxes on previous profits as these profits were earned before the shutting down period and generally the taxes on profits for current period are paid at a later period. Thus option B is incorrect.

.

Revenue is the total income that a business gets from its normal operations and variable cost is the cost that changes with the level of output. Thus, there will be no revenue and also variable cost. Hence option C is incorrect.

.

Sunk cost are the costs that cannot be recovered and are already been incurred. So a company can avoid its variable cost by shutting down but not its sunk cost. Hence option D is incorrect.

.

Fixed costs are the costs that are independent of the level of output. Therefore, a company after shutting down will not receive revenue but will have to bear fixed cost. Hence option A is correct.