Asked by Suzette Miranda on Jun 10, 2024
Verified
The shut-down point in the short run is the:
A) point at which economic profit is zero.
B) minimum point of AVC.
C) intersection of the MC and ATC curves.
D) minimum point of AFC.
Shut-down Point
The level of operation at which a company does not benefit from continuing operation and incurs losses by staying in business.
AVC
Average Variable Cost, which is the total variable costs of production divided by the quantity of output produced.
MC
MC, or Marginal Cost, is the cost of producing one additional unit of a product, crucial for understanding profit maximization in businesses.
- Identify the circumstances in which a company should persist in production or cease operations in the short-term.
Verified Answer
AD
Akhil DevabhakthuniJun 14, 2024
Final Answer :
B
Explanation :
The shut-down point is the point at which the firm covers its variable costs but not its fixed costs. In the short run, the fixed costs cannot be avoided, so the firm only needs to cover its variable costs to stay in business. The minimum point of AVC (average variable cost) is the point at which the firm covers its variable costs, so this is the shut-down point. Therefore, choice letter B is the correct answer.
Learning Objectives
- Identify the circumstances in which a company should persist in production or cease operations in the short-term.