A startup firm in a perfectly competitive market finds that its average total co

Question

A startup firm in a perfectly competitive market finds that its average total cost is higher than the market price Since the firm is incurring short-run losses, the management is debating whether to continue operations. Alex Ferguson, a senior manager, feels that this is a temporary phase and the firm should continue operations In which of the following cases would it be most advisable to continue to offer a product or service even though money is lost on each sale? A. Benjoad Ventures loses money on each sale of imported goods, but these losses are caused primarily O B. Weinstock Financial Services Group loses money with every transaction, but the owners have made ° C. SkyTarn Industries operated a construction business that loses money on each project, but the firm has O D. Appleson Publishing loses money on sales to the elementary school market, but market research 0 E. Choi's Traditional Korean Foods loses money on each sale of traditional Korean delicacies, but by factors outside Benjoad's control. enough money from previous operations to live very comfortable lives many profitable operations in other unrelated fields reveals that buyers in that market cannot afford to pay more customers who buy those goods also buy items with strong profit margins

Explanation / Answer

ANSWER : E is most advisible to continue to offer a product or service even though money is lost on each sale. Because E condition shows that customers of firm buy other items with those goods who makes money loss of the firm. The firm earns a strong profit margins from those items. As a producer of goods which make loss for firm in short-run, he/ she will still continue to produce but if producer see that those goods makes loss in long-run then he/she will stop the production.

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