00:01
So here we're thinking about whether a firm should shut down or not, right? so we have total fixed cost here, which is equal to 75 ,000.
00:13
We have total variable cost equal to 130 ,000.
00:19
And we have total revenue is equal to 145 ,000.
00:24
And the easiest way to do this is to think about a tree diagram, right? so option one is you shut.
00:31
Down.
00:35
If you shut down, right, you lose the total fixed cost and you get minus 75 ,000, right? your fixed costs are sunk.
00:45
The other decision is you could operate.
00:49
And here you get revenue minus cost, right? and so you get 1 .45 ,000 minus your variable costs, minus your fixed costs, right? and this is equal to minus 60 ,000.
01:04
This is better, right? so, it's a if you shut down, you're going to lose 75 ,000, but if you operate, you're going to lose 60 ,000.
01:11
So it seems like you should operate because you are making more money, right? so a, shut down.
01:20
No, that's wrong, right? we don't want to shut down...