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Q2. At a recent board meeting, the president and CEO got into a heated argument about whether to shut down the firm's plant in Miami. The Miami plant currently loses $60,000 monthly. The president of the firm argued that the Miami plant should continue to operate, at least until a buyer is found for the production facility. The president's argument was based on the fact that the Miam plant's fixed costs are $68,000 per month. The CEO exploded over this point, castigating the president for considering fixed costs in making the shutdown decision. According to the CEO "Everyone knows fixed costs don't matter!" a. Should the Miami plant be closed or continue to operate at a loss in the short run? Explain your answer with a graphical representation. b. How would you explain to the incorrect party that he or she is wrong?

Q2. At a recent board meeting, the president and CEO got into a heated argument about whether to shut down the firm's plant in Miami. The Miami plant currently loses $60,000 monthly. The president of the firm argued that the Miami plant should continue to operate, at least until a buyer is found for the production facility. The president's argument was based on the fact that the Miam plant's fixed costs are $68,000 per month. The CEO exploded over this point, castigating the president for considering fixed costs in making the shutdown decision. According to the CEO "Everyone knows fixed costs don't matter!" a. Should the Miami plant be closed or continue to operate at a loss in the short run? Explain your answer with a graphical representation. b. How would you explain to the incorrect party that he or she is wrong?

Microeconomics: Private and Public Choice (MindTap Course List)
Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter9: Price Takers And The Competitive Process
Section: Chapter Questions
Problem 15CQ
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Q2. At a recent board meeting, the president and CEO got into a heated argument about whether to shut down the firm's plant in Miami. The Miami plant currently loses $60,000 monthly. The president of the firm argued that the Miami plant should continue to operate, at least until a buyer is found for the production facility. The president's argument was based on the fact that the Miami plant's fixed costs are $68,000 per month. The CEO exploded over this point, castigating the president for considering fixed costs in making the shutdown decision. According to the CEO, "Everyone knows fixed costs don't matter!" a. Should the Miami plant be closed or continue to operate at a loss in the short run? Explain your answer with a graphical representation. b. How would you explain to the incorrect party that he or she is wrong?
Transcribed Image Text:Q2. At a recent board meeting, the president and CEO got into a heated argument about whether to shut down the firm's plant in Miami. The Miami plant currently loses $60,000 monthly. The president of the firm argued that the Miami plant should continue to operate, at least until a buyer is found for the production facility. The president's argument was based on the fact that the Miami plant's fixed costs are $68,000 per month. The CEO exploded over this point, castigating the president for considering fixed costs in making the shutdown decision. According to the CEO, "Everyone knows fixed costs don't matter!" a. Should the Miami plant be closed or continue to operate at a loss in the short run? Explain your answer with a graphical representation. b. How would you explain to the incorrect party that he or she is wrong?
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