A multiproduct firm compares temporary shutdown with its best feasible operating product mix. Assume no shutdown/restart cost and unchanged unavoidable costs. Which pair of totals is sufficient for this comparison?
A. Past sunk investment
B. Last year’s revenue
C. Total revenue from the proposed operating mix
D. Total operating costs that would be avoided by shutting down
C and D only
Compare C with D. Continuing the specified product mix is preferable if total revenue exceeds the operating costs avoided by shutting down, while common unavoidable costs cancel from the comparison. Equality gives indifference under the stated assumptions. Sunk costs and historic revenues do not determine this choice.
Important Questions from Short-run and long-run cost curves
- L shaped average cost curve is witnessed in the large firms because
- The minimum Long Run Average Cost (LAC) can be determined on a
I. LAC curve for a normal production function
II. LAC curve for a linear production function
III. Planning curve
IV. Envelope curve
Codes: Match the items of the List – I with those of List – II and suggest the correct code :
List – I List – II a. Constant average cost over a range of output i. Economic capacity b. Average cost becomes constant momentarily ii. Reserve capacity c. Normal average cost is a U-shaped curve iii. Production and Managerials costs effects d. Modern Long-run average cost is L-shaped iv. Economies and Diseconomies Codes :
a b c d
Match the items of List - I with those of the List - II and indicate the correct code :
List - I List - II (a) Excess capacity of the plant (i) Cost reduction with output expansion (b) Resorting to New Technology (ii) Constant cost with output expansion (c) Setting up of the Training Institutions (iii) Internal economies (d) Reserve capacity of the plant (iv) External economies Codes :
(a) (b) (c) (d)
