Figure 12-9

Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-9.Identify the short-run shutdown point for the firm.

Question

Figure 12-9
  
Figure 12-9 shows cost and demand curves facing a profit-maximizing, perfectly competitive firm.
-Refer to Figure 12-9.Identify the short-run shutdown point for the firm.

Quizplus · Accepted Answer

The short-run shutdown point for a firm is where the price (P) is below the minimum average variable cost (AVC). In this graph, it is point B where the AVC curve intersects with the marginal cost (MC) curve. At this point, the firm is not able to cover its variable costs and minimize its losses, so it should shut down in the short run. Any output level below point B would result in a greater loss than shutting down, while any output level above point B would result in a loss smaller than shutting down.

Figure 12-9 Figure 12-9 Shows Cost and Demand Curves Facing a Profit-Maximizing