shut down, now? perhaps, not now.

In a city like Hong Kong, the most expensive Asian city, high-priced rents of its are well known around the globe. Shops being forced to close down or move  owing to it are becoming small wonder to us. Banners hanged outside the shop, saying “結業大平賣“ are often seen. Even to the survived, they might be suffering a loss as well.

Does that mean once we are suffering loss, we shall shut down the business? Including the great company, Apple, would have times disappointing the expectation of investors. If it’s the case then, why Apple still has not close their business yet? Many shops would have not been existed anymore as well, however, why aren’t they?

When facing a loss, the owner have to consider the decision of whether continue to operate or close down business. Two possibilities would resulted in choosing either one of the option. For the former choice, who knows the next second, firm will be earning revenue which is adequate to cover the cost? However, for latter one, it could receive nothing and still has to pay rent, thus, suffered a loss. In business world, making loss is inevitable, but we do not want to miss the potential future chance. Hence, if the revenue is still higher than variable cost, it is no doubt, but for sure, will continue.

You may wonder why the firm still would choose to go on despite of 0 profit. It is because in economics, the cost is referred to "opportunity cost". When economics profit goes to zero, it means that the return to this industry is the same as if investing in next best alternative. Then, until what level of loss, will the owner stop his/her business? Until when its revenue is lesser than the variable cost.

You may feel that it is all common sense, which indeed it is. However, for economics, we do not just simply explain it, we go in dept in it, since it is the studies of human behavior.