You?ve been hired by an unprofitable firm to determine whether it
should shut down its unprofitable operation.

The firm currently uses 70 workers to produce 300 units of output per
day. The daily wage (per worker) is $100, and the price of the firm?s
output is $30. The cost of other variable inputs is $500 per day.
Although you don?t know the firm?s fixed cost, you know that it is
high enough that the firm?s total costs exceed its total revenue.

Should the company continue at a loss?

If the fixed costs have already been paid (let's say the rent and
taxes for the next quarter has been paid already), then it makes sense
to continue operating for the next three months because the fixed cost
has already been paid.

The firm should continue operating up until the next fixed cost
approaches, and then shut down.

Here's an example: If you couldn't afford an apartment you were living
in, you wouldn't move out immediately -- you'd move out on the last
day of the month that you've already paid for.

This is why some companies will continue to operate for a month or two
or three before closing their doors.

It also gives them time to re-strategize so they can possibly find
additional revenue streams to fix the problem.

Thanks for the help. Great example you have provided that I was
obviously overlooking.

Whoever hired you is a lame brain
- you become another fixed cost

By being hired you are possibly a fool (but hypothetically not definitely)
- you are being set up as the 'patsy' to take the flack