Only variable costs are relevant to a firm's decision to shut down.

Name: Only variable costs are relevant to a firm's decision to shut down.
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Question

Quizplus · Accepted Answer

This statement is true. Fixed costs are sunk costs that a firm has to incur regardless of whether it shuts down or continues its operations. Therefore, they are not relevant to a firm's decision to shut down. Only variable costs that can be avoided by shutting down are relevant.

Only Variable Costs Are Relevant to a Firm's Decision to Shut