The producers of \"Spider-Man: Turn Off the Dark spent $75 million bringing thei

Question

The producers of "Spider-Man: Turn Off the Dark spent $75 million bringing their musical to Broadway (Kevin Flynn and Patrick Healy, "How the Numbers Add Up [Way Up] for Spider-Man," New York Times, June 23, 2011). They spent $9 million alone on sets, costumes, and shoes. Their operating expenses were $1.2 milliona week as of January 2011. Since then, they revamped the show and lowered their operating costs to about $1 million a week. The show is selling out but bringing in between $1.2 and $1.3 million a week. The producers acknowledge that at the show's current earnings level, "Spider-Man" would need to run more than seven years to pay back the investors. Only 18 Broadway shows have ever run for seven years or longer. Should "Spider-Man" shut down or keep operating? Why? Spider-Man" should O A. O B. O C. 0 D. shut down because its fixed costs are greater than its weekly revenue. keep operating because its weekly revenue is positive shut down to avoid incurring weekly expenses. keep operating because its weekly variable costs are less than its fixed costs. E. keep operating because its weekly revenue is greater than its weekly variable costs

Explanation / Answer

ans=option e

There is a point when a firm should immediately shut down its business. However, it should be kept in mind that going out of business in the short-term does not imply that the firm’s losses become zero. As few of the inputs the firm uses are fixed, going out of business in the short -term implies that the firm loses its fixed costs.

Thus, if the firm can make adequate revenue to cover all its variable costs, it should remain in business in the short-term   to minimize its losses

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