Continue to operate at a loss in short run

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Q. At a recent board meeting CEO and president got into a heated argument about whether to shut down the firm's plant in Miami. The Miami plant currently loses $60,000 monthly. The president of the firm argued that the Miami plant should continue to operate, at least until a buyer is found for the production facility. The president disagreement was based on the reality that the Miami plant's fixed costs are $68,000 per month. The CEO exploded over this point, castigating the president for considering fixed costs in making the shutdown decision. As per CEO, "Everyone knows fixed cost don't matter!"

a) Explain the Miami plant which is closed or continue to operate at a loss in short run?

b) Explain how would you explain to the incorrect party that he or she is wrong?

Reference no: EM138706

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