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And, sometimes the business starts losing money. We saw that when oil prices went below many producers' extraction cost. They continued selling at the lower pr

• skeeter2020 5y ago
  This is also known as the "Groupon Business Model of Imminent Failure". Cash today is way more important than accounts receivable.
• Ekaros 5y ago
  Also sometimes supply or production is inelastic and not possible to scale down and up. Thus to have chance to generate money in future they had to accept loss now.
• mannerheim 5y ago
  My understanding with respect to the oil industry is that they have relatively high capital costs, and lower marginal costs. If prices drop so that they become unprofitable, it still makes sense to drill because the fixed costs are already sunk. It could also make sense if you expect the low prices to be a temporary situation, and shutting down and restarting would be expensive. Either way, producing at a loss is not sustainable in the long run, so without costs falling or prices increasing, they would eventually go out of business. This isn't really a factor for Arizona, since as a brand, not a commodity, they can set their price, and since they're cheaper than many of their competitors, they have room to work with here, too. If their unit cost is higher than their unit price, they don't expect costs to decrease, and they don't intend to raise their price, they would simply make more money by not making the product.