B. If the company decides to shut down operations for the next four months, the cost will still be 500,000 as it represents the fixed cost of running the business.
C. If the company can only produce a maximum of 100,000 units due to a strike, it should compare the cost of producing those units with the cost of shutting down operations.
The cost of producing 100,000 units would be:
C = 500,000 + 5(100,000) = 1,000,000
If the company's revenue from selling those 100,000 units is less than 1,000,000, it may be better to shut down operations. However, if the revenue is greater than 1,000,000, it would be better to continue production despite the lower output due to the strike.
XYZ company cost function for the next four months is C =500,000 + 5Q
B, what would be the company cost if it decides to shutdown operations for the next four months ?
C, if, because of strike ,the most the company can produce is br 100,000 units should it shutdown ? Why or why not?
1 answer
1 answer