A firm should shut down in the short run if the price of a good is less than its ________.

Question

Quizplus · Accepted Answer

In the short run, a firm should continue to produce as long as the price is greater than or equal to the average variable cost (AVC) of production. This is because in the short run, the firm cannot adjust its fixed costs, and so must cover its variable costs to minimize losses. Therefore, if the price is less than the AVC, the firm is better off shutting down and minimizing losses.

A Firm Should Shut Down in the Short Run If