In the short run, a firm should shut down when

Name: In the short run, a firm should shut down when
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Question

Quizplus · Accepted Answer

A firm should shut down in the short run when the price (P) falls below the average variable cost (AVC). This is because in the short run, the firm cannot change its fixed costs, and if it continues to produce, it will end up losing more money than if it shuts down and incurs only its fixed costs. Therefore, shutting down when P < AVC minimizes the losses for the firm.

In the Short Run, a Firm Should Shut Down When