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SHUTTING DOWN and GOING OUT OF BUSINESS

Letâ??s say a perfectly competitive firm is making losses and needs to determine whether it should SHUT DOWN or CONTINUE TO OPERATE. The firm currently produces 400 units of output per day and uses 70 workers. The daily wage per worker is $100, and the price of each unit of output is $20. The cost of other variable inputs is $600 per day.
Total Fixed Cost is $500 per day. Would you advice this firm to SHUT DOWN or CONTINUE TO OPERATE? Why?
Please carefully explain your answer and show the numbers you have used to arrive at this conclusion.

Question #2: What is the difference between SHUTTING DOWN and GOING OUT OF BUSINESS?

Solution Summary

Letâ??s say a perfectly competitive firm is making losses and needs to determine whether it should SHUT DOWN or CONTINUE TO OPERATE. The firm currently produces 400 units of output per day and uses 70 workers. The daily wage per worker is $100, and the price of each unit of output is $20. The cost of other variable inputs is $600 per day.
Total Fixed Cost is $500 per day. Would you advice this firm to SHUT DOWN or CONTINUE TO OPERATE? Why?
Please carefully explain your answer and show the numbers you have used to arrive at this conclusion.

Question #2: What is the difference between SHUTTING DOWN and GOING OUT OF BUSINESS?

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Sandeep Bardia, MBA

Rating 4.8/5

Active since 2005

BCom, SGTB Khalsa College, University of Delhi
MBA, Rochester Institute of Technology

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