Download the App!
Get 24/7 study help with the Numerade app for iOS and Android! Enter your email for an invite.
Get the answer to your homework problem.
Try Numerade free for 7 days
Like
Report
Many firms in the United States file for bankruptcy every year, yet they still continue operating. Why would they do this instead of completely shutting down?
A firm should take decision about to continue production or shut down if firm is making losses. Ifa firm is charging price below average total cost but above average variable cost then it meansthat it is covering the cost of production so it should keep producing continuously. And it is thereason that many firms file for bankruptcy but still continue to work because they are operating aprice level which is above average variable cost.
No Related Courses
Chapter 8
Perfect Competition
How Markets Work
Firm Behavior and the Organization of Industry
00:49
Why will losses for firms …
01:38
Why will profits for firms…
0:00
Many workers hold large am…
03:07
Why can firms not just use…
00:57
Why are banks more willing…
03:26
Should a firm shut down im…
02:43
If the firms in a monopoli…
01:48
Why will firms in most mar…
01:37
What is a bank panic? Why …
01:47
On some accounts, banks ch…
01:04
Why would a firm choose to…
00:55
When Microsoft was founded…
02:51
(Related to the Making the…
00:30
Why are scientists continu…
02:02
Why is limited liability m…
00:21
Explain how a company can …
00:53
since a perfectly competit…
01:00
What is likely to happen i…
What is limited liability?…
01:16
Many transportation system…
So if we assume that these firms that are filing for bankruptcy are perfectly competitive, there's a a few reasons why are there is one big reason why that even though they're making a loss there continue to operate in the short run, they will still continue to operate because they can pay for variable expenses If they're, um, if they have as much as, but they're making more than they're wearable expenses. So if we have our quantity, our price are marginal. Benefit our marginal cost. They might be making a loss in terms of average total cost. But if there so here at this point they're making a loss, they can still cover this much. They can still cover this much in terms of, um, how much they pay so they could still pay their workers and give them time to find other jobs. Uh, it's something to do while you know you are waiting to shut down, so you are able to cover your variable costs at the very minimum. So this is why some firms might ah, continue operating instead of totally
View More Answers From This Book
Find Another Textbook
Why will losses for firms in a perfectly competitive industry tend to vanish…
Why will profits for firms in a perfectly competitive industry tend to vanis…
Many workers hold large amounts of stock issued by the firms at which they w…
Why can firms not just use their own profits for financial capital, with no …
Why are banks more willing to lend to well-established firms?
Should a firm shut down immediately if it is making losses?
If the firms in a monopolistically competitive market are earning economic p…
Why will firms in most markets be located at or close to the bottom of the l…
What is a bank panic? Why are policymakers more concerned about bank failure…
On some accounts, banks charge a penalty if the depositor withdraws the mone…
Why would a firm choose to use one or more of the anticompetitive practices …
When Microsoft was founded, the company devoted very few resources to lobbyi…
(Related to the Making the Connection on page 333) As we have seen, some fir…
Why are scientists continuing to try to build a fusion reactor even though t…
Why is limited liability more important for firms trying to raise funds from…
Explain how a company can fail when the safeguards that should be in place f…
since a perfectly competitive firm can sell as much as it wishes at the mark…
What is likely to happen if firms accumulate large amounts of unplanned inve…
What is limited liability? Why does the government grant limited liability t…
Many transportation systems, such as the Washington, D.C., Metro (subway), c…
02:09
Does the earnings gap between the average wages of females and the average w…
01:15
Will the demand for borrowing and investing in R&D be higher or lower if…
02:08
Are the following goods non-rival in consumption?a. slice of pizzab.…
Classify the following pollution-control policies as command-and-control or …
Return to the problem explained in Table 7.13 and Table 7.14 . If the cost o…
02:13
Sometimes oligopolies in the same industry are very different in size. Suppo…
03:34
Who is included in the top income quintile?
01:51
Average cost curves (except for average fixed cost) tend to be U-shaped, dec…
02:23
If public utilities are a natural monopoly, what would be the danger in dere…
