Mr Capps Recently Built a Dental Floss Factory in Montana

question 59

Multiple Choice

Mr. Capps recently built a dental floss factory in Montana. It cost $500,000 and is expected to last ten years. The plant can only be used to produce dental floss and will have no scrap value. When a recession occurs, the yearly revenue from the plant declines to $35,000, compared to costs of $25,000 just for the variable resources required to produce the current rate of output. Mr. Capps should

• A) shut down since he is experiencing economic losses (in other words, he will not get his $500,000 back).
• B) reduce the price of dental floss if his demand is inelastic in order to increase his revenue.
• C) raise the price of dental floss if his demand is elastic in order to increase his revenue.
• D) continue to operate since he is covering his variable costs and the cost of the plant is a sunk cost.

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