Consider a simple two period model of a restaurant's cash flow. Let R1 = revenue in...
Consider a simple two period model of a restaurant's cash flow. Let R1 = revenue in period 1, R2 = revenue in period 2, C1 = cost in period 1, C2 = cost in period 2. Without any special financing , R1 = C1 and R2 = C2. Suppose the COVID 19 strikes and R1 falls. What can the owner do to continue in business?
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Reduce C1 by laying off workers. |
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Reduce C1 by selling machines. |
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Sell machines in period 2 to reduce C2. |
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Advertise more to increase demand. |
Homework Answers
In order to maintain an equilibrium, cost should be equal to revenue otherwise firm will reach below the break-even point, So in order to maintain the situation, the owner will reduce cost by laying off workers. Because they will be hired later on when the situation will be normal.
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