Discussion:
At a recent board meeting, the president and CEO got into a heated argument about whether to shut down the firm's plant in Jackson. The Jackson plant current loses
$60,000 monthly. The president of the firm argued that the Jackson plant should continue to operate, at least until a buyer is found for the production facility. The
president's argument was based on the fact that the Jackson plant's fixed costs are $68,000 per month. The CEO castigated the president for considering fixed costs in making the shutdown decision. According the CEO, "Everyone knows fixed costs don't matter!"
(a) Should the Jackson plant be closed or continue to operate at a loss in the short run?
(b) How would you explain to the incorrect party that he or she is wrong?