Answer: In order for the supermarket to operate throughout the night and not have a temporary shutdown then it’s total revenue at night must equal or exceed it’s variable costs that were incurred from staying open in those additional hours that is; electricity, wages of night shift workers and other variable costs.
2. Are the costs of rent, equipment, fixtures, salaries of management, and so on, relevant when the supermarket makes the decision whether to stay open at night?
Answer: No. These costs are fixed costs or sunk costs — costs that cannot be recovered even if the supermarket chooses not to operate at night.
3. If the supermarket had the same number of customers during its daytime hours as you observed during its nighttime hours, do you think it would continue to operate?
Answer: It is unlikely. This is because the temporary shut-down decision (staying open additional hours at night) depends on whether total revenue equals or exceeds variable costs, but the decision to remain in the market in the long-run depends on whether total revenue equals or exceeds total costs. It is unlikely that the revenue earned at night covers total costs (both fixed and variable costs).
b)Answer: No. At some point, if any input is fixed (say the size of the garden) the firm will experience diminishing marginal product of the variable inputs. That is, at some point, the garden will become crowded and additional workers will add smaller and smaller amounts to output.