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Given the current situation, many firms were forced to shut down in the short-run. However, it...

Given the current situation, many firms were forced to shut down in the short-run. However, it is being assumed that many will reopen and go back to business in the near future. Look at a specific firm or industry and discuss the decision these firms need to make and how you believe conditions will impact these decisions. Be sure to link your answer to the concepts of average and average variable costs which govern these decisions for firms.

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Answer #1

Currently those firm are closing who are not able to cover their variable cost in the market, for example, for a restaurant the variable cost in the market will be the cost of labor and all the goods that they use as input, cooking oil etc.

If they are not able to recover that cost in the market as well then they will consider closing in the short run and face loss only on the fixed cost, that is the building etc. at this point the more they produce the more they will lose. in the long run as the cost of the goods in the market increase these firms will be back in the market.

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