Survival means a firm keeps running and does not go bankrupt. It must cover its total costs (fixed + variable) and stay afloat in the market. Think of a small café that must earn enough to pay rent, staff, and coffee beans each month. If it can’t, it will close its doors. 🚪
• Market Stability: If many firms fail, the industry shrinks and jobs disappear.
• Innovation Continuity: Surviving firms can invest in research and keep improving products.
• Consumer Choice: More firms mean more options for shoppers.
(Remember: survival is the foundation before any other goal!)
Imagine a small boat sailing in a vast sea. To survive, it must:
| Policy | Purpose | Example |
|---|---|---|
| Cost‑Control | Reduce variable costs to keep TR > TC. | Switch to cheaper suppliers. |
| Revenue Diversification | Spread risk across products. | A bakery adding a catering service. |
| Financial Reserves | Buffer against downturns. | Emergency cash fund. |
Survival requires that total revenue (TR) at least equals total cost (TC).
Formula: \$TR \geq TC\$
If \$TR < TC\$, the firm incurs a loss and may need to shut down in the short run.
Example:
\$TR = P \times Q = 12 \times 600 = £7,200\$
\$TC = FC + VC \times Q = 5,000 + 10 \times 600 = £11,000\$
Since £7,200 < £11,000, the firm is not surviving at this level of output. 🚨
• Define survival: covering all costs to avoid bankruptcy.
• Contrast with profit maximisation: profit = \$TR - TC\$, survival only needs \$TR \geq TC\$.
• Use examples (e.g., small shop, startup) to illustrate.
• Show mathematical condition (\$TR \geq TC\$) clearly.
• Remember to discuss policies that help survival (cost control, diversification).
Sample Question: “Explain how a firm can use cost‑control to achieve survival.”
Answer: Outline the strategy, give an example, and show the inequality \$TR \geq TC\$.