A firm should shut down production when A)P minimum AVC. C)P = minimum ATC. D)P = MC.

Question

A firm should shut down production when
A)P < minimum AVC.
B)P > minimum AVC.
C)P = minimum ATC.
D)P = MC.

Quizplus · Accepted Answer

A firm should shut down production when price (P) falls below the minimum average variable cost (minimum AVC) to minimize their losses. If the price is less than the minimum AVC, the company cannot generate enough revenue to cover even its variable costs. Hence, it is better to shut down the production temporarily until the price rises above the minimum AVC level.

A Firm Should Shut Down Production When