Why would a company continue to operate for many years while ...

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Why would a company continue to operate for many years while never once turning a profit rather than shut down immediately? Using revenue and cost analysis, explain when the company would shut down.
 
  What will be an ideal response?

Question 2

Your roommate argues that he can think of no better situation than living in a deflationary economy, as prices of goods and services would continuously fall. You disagree and argue that during a deflation, people can be made worse off because
 
  A) the purchasing power of the currency would decrease.
  B) the value of the real interest rate will drop below the nominal interest rate.
  C) borrowers will have to pay increasing amounts in real terms over time.
  D) the purchasing power of people's incomes would increase.

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Answer to Question 1

A company would continue to operate rather than shut down so long as it could cover its variable costs. If revenues did not cover all of the firm's variable costs, it would shut down.

Answer to Question 2

C