By shutting down,a firm

Question

Quizplus · Accepted Answer

When a firm shuts down, it stops receiving revenue but is still responsible for paying its fixed costs such as rent, salaries of permanent employees, and interest payment on loans. The firm cannot avoid its fixed costs by shutting down, which is why option B is the correct answer. Option A is incorrect because the firm stops receiving revenue and therefore cannot pay variable costs. Option C is incorrect because sunk costs are irrelevant in the decision to shut down, and variable costs cannot be avoided. Option D is incorrect because taxes must be paid on previously earned profits regardless of whether the firm shuts down or not.

By Shutting Down,a Firm