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 Western Electric designer on Birth of Tube Amplifier! US $30.00 
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John Diaz owns Pacific Electric, a large electrical contracting firm that provides services to building constr?
John Diaz owns Pacific Electric, a large electrical contracting firm that provides services to building construction projects. The company has 2,000 employees and operates in three western states. Recently the company experienced large losses due to a downturn in the economy and a slowdown in construction. John thinks the losses were particularly large because his company has too much fixed cost.
Expand on John's thought. How are the large losses related to fixed costs?
My thought regarding the loss being 'blamed' on too much fixed costs is this:
Fixed costs are things like rent on buildings and administrative salaries. It sounds like the company expanded during the 'boom times' by renting/buying/leasing more buildings in the three states, which carries with it the associated administrative and staffing fixed costs as well. Then when the revenue starts slumping, the company still has to cover those fixed costs. The money has to come from somewhere - if not from revenue, the company would have to take out loans.
The employee wages are a variable cost - those can be 'trimmed' by lay-offs or reduction in scheduled hours. (We see that all too frequently these days).
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