Q. Write your opinion about the below paragraph? Also, mention any example?
Topic: Your accountant has just told you that your company is losing money. Why might you decide to stay in business anyway?
I would decide to stay in the business because in the short run most costs are fixed in nature. If the business is wound up even then committed fixed cost (unavoidable cost) will continue. After winding up, it is difficult to restart the same business as it would require huge capital and will have fewer customers' confidence.
Whereas if the business is continued during loss or boom period, the business can recover the variable cost (avoidable) and some contribution towards the fixed costs.
Therefore I will consider some situations like shut down or break-even point.
Break-even point is a level of output for a price where firms do not make loss or profit.
Shutdown point occurs when the price of the product is comparatively very low to average total cost (ATC). In this scenario, temporary shut down is the good option.
Q. Write your opinion about the below paragraph? Also, mention any example?
Government bailouts are both good and bad. Good because it infuses cash into the company and instead of all their costs being sunk costs, they can recover some of the capital spent on the government bail out. Moreover, with new capital manufacturers could resume production. However, infusing cash artificially into the system could lead to waste as some managers would to be lazy and not actively adopt cost-saving methods. However, the chances of economic inefficiency during the 2002 bailout would have been low since with government bailouts there was tight oversight and the manufacturing companies were under pressure to bounce-back quickly. So firms bailed out during that period laid off a lot of employees and cut down wages to save costs. This type of drastic cost saving methods can disrupt the optimal level of production along the expansion path, as the labor vs. capital changes would disproportionate.
Q. Write your opinion about the below paragraph? Also, mention any example?
Topic: Your accountant has just told you that your company is losing money. Why might you decide to stay in business anyway?
I would decide to stay in the business because in the short run most costs are fixed in nature. If the business is wound up even then committed fixed cost (unavoidable cost) will continue. After winding up, it is difficult to restart the same business as it would require huge capital and will have fewer customers' confidence.
Whereas if the business is continued during loss or boom period, the business can recover the variable cost (avoidable) and some contribution towards the fixed costs.
Therefore I will consider some situations like shut down or break-even point.
Break-even point is a level of output for a price where firms do not make loss or profit.
Shutdown point occurs when the price of the product is comparatively very low to average total cost (ATC). In this scenario, temporary shut down is the good option.
Q. Write your opinion about the below paragraph? Also, mention any example?
Government bailouts are both good and bad. Good because it infuses cash into the company and instead of all their costs being sunk costs, they can recover some of the capital spent on the government bail out. Moreover, with new capital manufacturers could resume production. However, infusing cash artificially into the system could lead to waste as some managers would to be lazy and not actively adopt cost-saving methods. However, the chances of economic inefficiency during the 2002 bailout would have been low since with government bailouts there was tight oversight and the manufacturing companies were under pressure to bounce-back quickly. So firms bailed out during that period laid off a lot of employees and cut down wages to save costs. This type of drastic cost saving methods can disrupt the optimal level of production along the expansion path, as the labor vs. capital changes would disproportionate.
