Question

The accounting hired by Forever Fitness have determined total fixed cost to be $75,000, total variable cost to be $130,000, and total revenue to be $125,000.
Because of this information, in the short run, Forever Fitness should:


a) lower their prices to increase their profits.

b) stay open because the firm is making an economic profit.

c) stay open because shutting down would be more expensive.

d) shut down because staying open would be more expensive.

Answer 1

Answer:

Option D. Shut down because staying open would be more expensive.

Explanation:

The reason is that the total variable cost is lower than the total revenue which means the company can not reduce its variable cost so it is meaningless to produce the product. So the best option left is not to generate loss by simply shutting down the business.