Microeconomics
9th Edition
ISBN: 9780134184906
Author: Robert Pindyck, Daniel Rubinfeld
Publisher: PEARSON
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Question
Chapter 8, Problem 1RQ
To determine
Identify why a firm that incurs losses choose to produce rather than shut down.
Expert Solution & Answer
Explanation of Solution
The economic loss is a situation that occurs when the total revenue of the firm is less than the total cost of the firm. However, the firms will be ready to accept the losses rather than shut down in the short run. This is because the total cost is the sum total of variable cost and the fixed cost. In the short run, if the total revenue is greater than the variable cost and less than the total cost of the firm, then the losses incurred by the firm would be minimized. Thus, even though the firm faces loss in the short run, it would operate rather than shut down the production.
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Why would a firm that incur choose to produce rather than to shut down?
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Chapter 8 Solutions
Microeconomics
Ch. 8 - Prob. 1RQCh. 8 - Prob. 2RQCh. 8 - Prob. 3RQCh. 8 - Prob. 4RQCh. 8 - Prob. 5RQCh. 8 - Prob. 6RQCh. 8 - Prob. 7RQCh. 8 - Prob. 8RQCh. 8 - Prob. 9RQCh. 8 - Prob. 10RQ
Ch. 8 - Prob. 11RQCh. 8 - Prob. 12RQCh. 8 - Prob. 13RQCh. 8 - Prob. 14RQCh. 8 - Prob. 1ECh. 8 - Prob. 2ECh. 8 - Prob. 3ECh. 8 - Suppose you are the manager of a watchmaking firm...Ch. 8 - Prob. 5ECh. 8 - Prob. 6ECh. 8 - Prob. 7ECh. 8 - Prob. 8ECh. 8 - Prob. 9ECh. 8 - Prob. 10ECh. 8 - Prob. 11ECh. 8 - Prob. 12ECh. 8 - Prob. 13ECh. 8 - A sales tax of 1 per unit of output is placed on a...Ch. 8 - Prob. 15E
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Similar questions
- Many firms in the United States file for bankruptcy every year, yet they still continue operating. Why would they do this instead of completely shutting down? Think of recent examples.arrow_forwardMany firms, especially in perfectly competitive markets, file for bankruptcy every year, yet they still continue operating. Why would they do this instead of completely shutting down?arrow_forwardIn long-run equilibrium, all firms in the industry earn zero economic profit. Why is this true?arrow_forward
- If a firm closes down and produces no output, what will be its total cost ?arrow_forwardCan you explain to me why in the short run, firms only use variable cost to determine whether or not to shut down.arrow_forwardWhat happens to the value of resources when losses are present? If a firm making losses goes out of business, is this bad? Why or why not?arrow_forward
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