Question

Charmingbells inc. has been running into a loss gradually, but the board of directors are reluctant to shut the company down because it has invested millions of dollars' worth of equipment which can only be used in that industry. moreover, the people in charmingbells inc. have become emotionally attached to the company and do not want the company completely shut down. this scenario best illustrates _____.

Answer 1

The situation best outlines Competitive Failure. In financial aspects, advertise disappointment is a circumstance in which the portion of products and ventures isn't proficient. That is, there exists another possible result where no less than one individual might be improved off without exacerbating another person off.

Answer 2

This scenario best illustrates the high exit barriers. As Charmingbellsinc.permanently been running into a loss gradually, but the board of directors is reluctant to shut the company down because it has invested millions of dollars' worth of equipment. It bears a high cost of exit barriers.  

Further Explanation:

Exit barriers:

Exit barriers mean the loss occurred in the case of shutting down the business. When the company invested a huge amount of money in the business. The investment is made in the equipment or infrastructure. If the company faces losses, the management should be taken into consideration. When the loss is higher than the cost of investing, the management should shut down the company. But if the loss is lesser than cost of investing, the management should try to reduce the loss and postpone the decision of shutting down.

Shut down:

Shut down means the permanent closed down of the business. The company is no more, producing the goods or providing any services. The company does this only in case of earning a loss. If the company earns a profit, the company is not going to shut down the business. It is the last option as if a company faces loss, the company tries to earn profit by using different means. The company tries to cut down the cost of the product.  

Therefore, the shutdown is the permanent closed down of the business.  

Learn more:

1. Learn more about the inflation rate and economy

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2. Learn more about profit margin

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3. Learn more about decision making

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Answer details:

Grade: High School

Subject: Accounting

Chapter: Decision making

Keywords:charming bells inc., been running, loss gradually, a board of directors, reluctant,  shut sown, invested millions, decision making, worth of equipment, industry, emotionally attached, company, completely, shut down, high exit barriers.