By Shutting Down, a Firm

question 40

Multiple Choice

By shutting down, a firm

• A)stops receiving revenue but continues to pay variable costs.
• B)stops receiving revenue and is stuck with its fixed costs.
• C)avoids its sunk costs as well as its variable costs.
• D)can avoid paying taxes on its previously earned profits.

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Definitions:

Cost-volume-profit

An analysis to determine how changes in costs and volume affect a company's operating income and net income.

Fixed Costs

Costs that do not change in total despite fluctuations in the volume of goods or services produced or sold.

Variable Costs

Charges that fluctuate according to the degree of business operations.

Cost-volume-profit Graph

A graphical representation that shows the relationship between a company's costs, its sales volume, and its profits, used for planning and decision-making.