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

Question

Jaidyn Barr

Business

18 April, 22:59

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

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Answers (1)

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Konnor Sanders · Answer 1

C. Stops receiving revenue and is stuck with its fixed costs

Explanation:

Shut down means that a firm is temporarily suspending the production but not exiting the industry or going out o business and the firm would start production if the market improves. It is a short-run decision. A firm that has been shut down generates zero revenue and doesn't incurs variable costs, but does incurs the fixed costs. Its profits is equal to the negative of fixed costs. Rents and other business costs that remains constant regardless of the good and services produced is called fixed costs.