Are there any circumstances where a firm may continue operating even if it is not making a profit at the MR=MC price point?

1 Answer
Dec 8, 2015

Yes, There Are Many Reasons that apply even if MR is actually lower than MC, Here are 9 of them:


1- The Company is in a seasonal commodity market such as tourism, more precisely religious tourism, or crops like cocoa in Kenya which yields only in the last quarter of the year.

2- The Company is expecting the price of the commodity to pitch up, or the price is in a temporary bottom.

3- The Company is in fact a subsidiary producing production material to its parent's and sisters' products.

4- The Company is a charity, or built to house labor of certain need as part of communal development plans, or preserve an industry from extinction like glass painting and copper arts.

5- The Company has a plan to expand in the near future and requires the currently available assets as base for such plan.

6- regardless the unethical condition, The Company is successfully manipulating profits to avoid taxes or to gain future tax exemptions.

7- also regardless how unethical it is, The Company may actually be a cover for illegal business such as money laundry.

8- The Company owners or management are intentionally devaluing the company in terms of Rate of Return in order to facilitate selling it to a broader range of investors. this for example is the ABC catalogue of privatization.unethical but totally legal.

9- The Company is expecting an asset to live more than the depreciation period, eg. an asset that was supposed to live ten years is functioning properly and can continue to produce for five more years which would significantly cut down depreciation expenses.

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