Chapter 20: Problem 2

The decision to shut down is made in __________ (LO8) a) both the short run and the long run b) neither the short run nor the long run c) the long run d) the short run

Short Answer

Expert verified

The correct answer is a) both the short run and the long run. A decision to shut down a business can be made in both the short run (if it cannot cover its variable costs) and the long run (if it cannot cover its total costs).

Step by step solution

Understand the terms short run and long run

In economics, the short run is a period where at least one input (usually capital) is fixed, while the long run is a period where all inputs can be varied. In the short run, businesses try to cover their variable costs, whereas, in the long run, businesses aim to cover all costs, including fixed costs.

Analyze the options

a) both the short run and the long run: In this option, we need to consider if a decision to shut down is made in both the short run and the long run. b) neither the short run nor the long run: In this option, we need to evaluate if a decision to shut down is never made in economics. c) the long run: In this option, we need to check if a decision to shut down is only made in the long run. d) the short run: In this option, we need to consider if a decision to shut down is only made in the short run.

Evaluate option a

In both the short run and the long run, a decision to shut down can be made if a firm is unable to cover its costs. In the short run, a firm will shut down if it cannot cover its variable costs, while in the long run, a firm will shut down if it cannot cover its total costs, which include both fixed and variable costs.

Evaluate option b

This option states that a decision to shut down is never made in either the short run or the long run. However, as mentioned in Step 3, a firm can decide to shut down if it cannot cover its costs in either the short run or the long run.

Evaluate option c

This option states that a decision to shut down is only made in the long run. But as we discussed in Step 3, a firm can decide to shut down in both the short run (if it cannot cover its variable costs) and the long run (if it cannot cover its total costs).

Evaluate option d

This option states that a decision to shut down is only made in the short run. However, as mentioned in Step 3, a firm can decide to shut down in both the short run (if it cannot cover its variable costs) and the long run (if it cannot cover its total costs).

Select the correct answer

Based on our evaluation of the four options, option a) both the short run and the long run is the correct answer. A decision to shut down a business can be made in both the short run and the long run, depending on whether the firm can cover its costs.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!