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November 22, 2014

Homework Help: economics

Posted by Ashaki on Wednesday, May 30, 2012 at 10:14pm.

At a recent board meeting, the president and CEO got into a heated argument about whether to shut down the firmís plant in Miami. The Miami plant currently loses $60,000 monthly. The president of the firm argued that the Miami plant should continue to operate, at least until a buyer is found for the production facility. The presidentís argument was based on the fact that the Miami plantís fixed costs are $68,000 per month. The CEO exploded over this point, castigating the president for considering fixed costs in making the shutdown decision. According to the CEO, ďEveryone knows fixed cost donít matter!Ē
a) Should the Miami plant be closed or continue to operate at a loss in short run?
b) How would you explain to the incorrect party that he or she is wrong?

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