Suppose a Restaurant That Is Highly Profitable During the Summer

question 137

Multiple Choice

Suppose a restaurant that is highly profitable during the summer months is unable to cover its total cost during the winter months. If it wants to maximize profits, the restaurant should

• A) shut down during the winter, even if it is able to cover its variable costs during that period.
• B) continue operating during the winter months if it is able to cover its variable costs.
• C) go a out of business immediately; losses should never be tolerated.
• D) lower its prices during the summer months.

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Definitions:

Variable Cost

Expenses that fluctuate based on the level of production or the amount of output.

Total Cost

The complete cost of producing a specific quantity of output, including both fixed and variable costs.

Average Total Cost

The average cost for each unit produced, calculated by dividing the total production expenses by the quantity of units made.

Variable Cost

Costs that change in proportion to the level of production or sales, such as raw materials and labor expenses.