Bety's beauty salon service is a profit-maximizing. competitive firm. Bety gives beauty service
for $27 cach. Her total cost each day is $280, of which $30 is a fixed cost. She works 10 women a
day. What can you say about Bety's short-run decision regarding shut down? Explain your
answer
In the short-run, Bety would consider shutting down her beauty salon if her total revenue (generated from serving her customers) is less than her total variable cost (total cost - fixed cost). This is because in the short-run, she cannot eliminate her fixed costs and can only control her variable costs.
To determine if Bety should shut down or continue operating, we need to calculate her total revenue and total variable costs.
Total revenue = Price per service x Number of services
Total revenue = $27 x 10 = $270
Total variable cost = Total cost - Fixed cost
Total variable cost = $280 - $30 = $250
In this case, Bety's total revenue ($270) is greater than her total variable cost ($250). Therefore, she is covering all her variable costs and still generating some profit. As a profit-maximizing firm, she would choose to continue operating in the short-run rather than shutting down.