A firm will shut down in the short run if

Question

Quizplus · Accepted Answer

A firm will shut down in the short run if the price (P) is less than the average variable cost (AVC). This is because in the short run, the firm cannot exit the market completely and must still pay their fixed costs (FC). If the price is less than the AVC, the firm is not even covering their variable costs, and continuing to operate would mean losing money on every unit produced. Therefore, it is best for the firm to shut down in this situation in order to minimize their losses.

A Firm Will Shut Down in the Short Run If