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A2 Economics - Business Economics Unit 3 : Can someone explain Shutdown point to me ? watch

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    What is Shutdown point

    in A) Short run
    B) long Run

    what is the exact point, is it if AR is above AC in short run firm will produce but for firm to produce in long run AR must be above AFC ??

    thankx
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    (Original post by Thomassss)
    What is Shutdown point

    in A) Short run
    B) long Run

    what is the exact point, is it if AR is above AC in short run firm will produce but for firm to produce in long run AR must be above AFC ??

    thankx

    Short Run: Firm must cover its variable costs as this is 'the least bad option'. Since fixed costs are sunk costs they are ignored.
    Long Run: Firm must not make a loss so AR=AC
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    Shutdown point: It's when AVC is above/equal to AR. Therefore, the firm will operate at a loss for each unit of extra output it produces at this point. in the perfectly competitive market (due to no entry/exit barriers, perfect information), the firm will leave the market, in both the SR and the LR.
    In an imperfectly competitive market, the firm in the SR, will close down for a few months, similar to what the automobile industry did recently. In the LR, if the costs allow it, they will shutdown and leave the industry.

    Hope it helped.
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    (Original post by Zürich)
    Short Run: Firm must cover its variable costs as this is 'the least bad option'. Since fixed costs are sunk costs they are ignored.
    Long Run: Firm must not make a loss so AR=AC

    thank u
 
 
 
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