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# SHUTTING DOWN and GOING OUT OF BUSINESS

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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 Preview

The daily revenues is \$8000 (400*20) and daily costs is 8100 dollars (7000+500+600), ie, the firm is making \$100 loss per day. Now, it should shut down temporarily if fixed costs ...

#### 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?

\$2.19