Asked by Madison Chrisman on Jul 11, 2024
Verified
If your total revenue is $10 million,your variable costs are $8 million,and your fixed costs are $20 million,in the short run you will
A) operate.
B) shut down.
C) go out of business.
Total Revenue
The total income generated by a firm from the sale of its goods and services, calculated as the selling price per unit times the number of units sold.
Variable Costs
Costs that change in proportion to the level of activity or production volume, such as materials and direct labor.
- Identify the scenarios where sustaining operations or ceasing activities in the short term proves advantageous.
Verified Answer
LL
Lauren lemkeJul 12, 2024
Final Answer :
A
Explanation :
In the short run, the firm should still operate despite the fact that it is not covering its fixed costs. This is because the total revenue is greater than its variable costs, which means that the firm is still covering its variable costs and making a contribution toward its fixed costs. Shutting down would mean that the firm would earn zero revenue and would still have to pay its fixed costs, leading to even greater losses. Going out of business would be a drastic step that is not warranted by the current situation.
Learning Objectives
- Identify the scenarios where sustaining operations or ceasing activities in the short term proves advantageous.