Eco 365 Week 2 Dq

For a firm to shut down in the short run, the average variable cost can avoid paying by shutting down exceed the price it would get for selling the good (Colander, pg. 328). At a certain point to continue producing and selling goods would get higher than the fixed costs of not producing the goods or service. As the text mentions, automakers will continue to produce at a loss because the labor is a fixed cost due to union agreements. These agreements state that the workers will get paid if they are working or not working. In this instance the automaker cannot afford to shut down even for the short run. In recent times, several automakers have decided to shut down for the short run due to manufacturing defects to their products. Toyota has experienced this type of shut down several times in the last few years. The decision to have a temporary shutdown would have a less of loss compared to the repair of the products that have already been sold. Toyota eventually resumed production of these vehicles once the issue was discovered and corrected to the products.
In the short-run, which is usually defined as when capital is fixed, fixed costs don't enter into the decision of whether to operate or not. Only variable costs matter. In the long-run, all costs are variable. Under what conditions will a firm shut down operations in the short run? Identify an example you are familiar with, or have identified through research, of a business that has temporarily shut down operations in the short run. What led to this decision? Did the firm resume operations at a later date?

Conditions where a firm will shut down operation in the short run is decided when the firm can maximize it's profits. According to "Short - Run Supply" (2012), "A firm maximizes its profits by choosing to supply the level of output where its marginal revenue equals its marginal cost. When marginal revenue exceeds marginal cost, the firm can earn greater profits by increasing its output". For example, in a