Managerial Economics 2nd Edition by William Boyes

Exercise 11

Middleton Steel Company is considering whether to temporarily close one of its manufacturing plants. If it does close the plant, it faces the costs of shutting down and then starting back up, the costs of criticism from the city in which the plant is located, and the costs of customer abandonment as some customers purchase products elsewhere. If it does not close the plant, it will experience substantial losses because revenues will not cover variable costs.
a. What would a net present value analysis say about the decision?
b. What other strategies might be used?