Question
Question 5 Management is concerned about profitability, and evaluating a possible shutdown of a subdivision that operates in a competitive industry. You have been asked
Question 5
Management is concerned about profitability, and evaluating a possible shutdown of a subdivision that operates in a competitive industry. You have been asked to give an objective assessment. You note that the market price in this industry is currently $10, and production is completely standardized, so that every firm has the same cost structure, which is captured by the function C = 100 + 0.1Q2 (where Q is a firm's output). However, in the long run, it will be possible to make changes to fixed expenses. Taking this into account, if the company continues production after another year, the cost function will be C = 5Q + 0.1Q2. With this information in mind, how will you describe the company's profitability in the short run and in the long run?
| a | The firm is making a loss now, but will earn zero profit in the future. | |
| b | The firm earns zero profit now, and will make a loss in the future. | |
| c | The firm earns zero profit now, and will earn positive profit in the future. | |
| d | The firm is earning positive profit now, but will earn zero profit in the future |
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Quantitative Chemical Analysis
Authors: Daniel C. Harris
8th edition
1429218150, 978-1429218153
