Answer to Question #91919 in Microeconomics for John Manda

Question

Have you ever walked into a restaurant for lunch and found it almost empty? Why, you might have asked, does the restaurant even bother to stay open? It might seem that the revenue from so few customers could not possibly cover the cost of running the restaurant. In making the decision of whether to open for lunch, a restaurant owner must keep in mind the distinction between fixed and variable costs. Explain why Shutting down during lunch would not reduce any of the restaurant costs

Answer 1

While considering closing the restaurant during the lunch, the owner should consider fixed and variable costs. Since the most costs of the restaurant are fixed - rent, salaries, rent of equipment, closure during lunch break will not help the owner to increase profitability.