Eco 365 Week 2 Dq

3601 Words Dec 11th, 2012 15 Pages
For a firm to shut down in the short run, the average variable cost can avoid paying by shutting down exceed the price it would get for selling the good (Colander, pg. 328). At a certain point to continue producing and selling goods would get higher than the fixed costs of not producing the goods or service. As the text mentions, automakers will continue to produce at a loss because the labor is a fixed cost due to union agreements. These agreements state that the workers will get paid if they are working or not working. In this instance the automaker cannot afford to shut down even for the short run. In recent times, several automakers have decided to shut down for the short run due to manufacturing defects to their products. Toyota has …show more content…
Sometimes it is smarter for a company to keep producing when they are not making enough, but they do need to keep a close eye on how much of a loss they are making and if the market is going to turn around.

I have seen a local restaurant close the doors twice in the last three years. The owners were not making enough to cover the variable costs of the company to keep the doors open. The first time they closed down it took five months before they were able to open doors again. To make it better, they had a reopening party to show the cleaning and new staff they had. The decision to close the first time came because the staff was not giving the best service which caused people to stop going there. The restaurant is out of town ten miles, which already causes an issue to make sure they receive enough business to stay open. The second time the restaurant closed its doors was a little different. The owners choose to open only on weekends from four in the afternoon to one in the morning. The amount of business on the weekends is more, and the company was not losing as much because they did not have to have keep the same amount of inventory or pay the same wages as staying open all week. Now the owners have decided the restaurant does better when open four days a week and on special holidays instead of seven days a week. Business
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