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According tp standard microeconomic theory, if a firm is dealing with an immediate disaster (i.e. flood, earthquake) or facing bankruptcy, then it might layoff workers now to cut costs. This type of executive decision is known as short-run cost management.

A. Only the MB=MR concept can give us the best answer.
B. Only game theory software can answer this question for us. This option is the only hope.
C. This is a false statement.
D. This is a true statement.

1 Answer

5 votes

Final answer:

The true statement reflects a firm's decision-making in microeconomic theory about whether to shut down or continue operating in the face of disasters or impending bankruptcy, considering the ongoing obligation to cover fixed costs.

Step-by-step explanation:

The statement that firms may lay off workers to manage short-run costs during immediate disasters or when facing bankruptcy is accurate, reflecting strategies that may be employed in response to economic hardships. Standard microeconomic theory acknowledges that firms encounter the shutdown point, where they must decide whether to continue producing or shut down, especially when variable costs exceed revenues from sales. This decision is influenced by whether they can cover their variable costs and if production can contribute to fixed costs. The presence of fixed costs, which have to be paid even if production stops, influences a firm's decision to keep operating or lay off workers in the short run. The statement mentioned is true as it corresponds with economic theories and practices relevant to cost management.

Further, game theory software is not the singular method for answering such business strategy questions, and MB=MR, meaning marginal benefit equals marginal revenue, is just one of many considerations in decision making. Strategic decisions would take into account various factors including but not limited to current economic conditions, the state of the firm, and market predictions. Therefore, option 'D' (This is a true statement) is the correct response to the student's question.

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