IDENTIFYING TRENDS IN MICROECONOMICS
Revenue units produced output price 300,000 30 9,000,000
With the recent strike of financial crisis all over the globe, it is expected to see businesses experiencing hardships in maintaining their profitability and financial stability. As for the company concerned in this paper which has been experiencing net loss on its operations, it is not advisable to shut down its operations even though it has been earning in negative position since it will only cost the company more compared to continuing its operations. The fixed cost that the company invested such as machineries, land, and buildings will not be recovered if it will shut down its operation at this point in time. The company still has to pay the cost of its fixed investments whether it continue or not the production of goods services in the market.
Moreover, as a common knowledge among economists, in the short run a firm must continue its operation for as long as the revenue exceeds its variable cost. As for the case of the company concerned, the revenue at present is still greater than the variable cost (9,000,000 7,500,000 1,500,000). Although producing anything will give the company returns not enough to offset the fixed cost as part of the variable cost, but, by not producing, the company will lose the entire fixed cost.
Therefore, the most effective way for the company to surpass its financial difficulty would be to continue its operations and wait for the recovery of the market which is already on its way according to most analysts (Euromonitor International, 2008). Given the competitive recovery of numerous markets around the globe, the company should hold on the future trends of the economy. By doing this, the adverse effects of market deterioration will only inflict a small wound on the companys financial stability.