“A restaurant in a summer tourist area that is highly profitable during the summer but unable...
- “A restaurant in a summer tourist area that is highly profitable during the summer but unable to cover even its variable costs during the winter months should operate during all months of the year as long as its profits during the summer exceed its losses during the winter.” -- Is this statement true? Explain in 2-3 sentences.
Homework Answers
A firm should not operate if its revenue is lower than the variable costs. This would make the firm suffer loss. In this case, if it operates even in the winters, it will erode its summer profits. Therefore, it should operate only in the summers.
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