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Even If a Firm Is Optimistic About the Future, Why

question 39

Essay

Even if a firm is optimistic about the future, why should it shut down if it cannot cover its variable cost? If it does shut down, are there ramifications not mentioned in the textbook?


Definitions:

Rational

Referring to thinking or decision-making that is based on logic or reason rather than emotions.

Optimizing

The process of making something as effective, functional, or profitable as possible.

Consumer Surplus

The difference between the total amount consumers are willing and able to pay for a good or service and the total amount they actually pay.

Price Elasticity

An indicator of the sensitivity of demand for a product to variations in its price.

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