Asked by: Sybil Hockauf
asked in category: General Last Updated: 7th May, 2020

What is the shutdown point in economics?

A shutdown point is a level of operations at which a company experiences no benefit for continuing operations and therefore decides to shut down temporarily (or in some cases permanently). It results from the combination of output and price where the company earns just enough revenue to cover its total variable costs.

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Herein, how do you find the shutdown point?

The short run shutdown point for a competitive firm is the output level at the minimum of the average variable cost curve. Assume that a firm's total cost function is TC = Q3 -5Q2 +60Q +125. Then its variable cost function is Q3 –5Q2 +60Q, and its average variable cost function is (Q3 –5Q2 +60Q)/Q= Q2 –5Q + 60.

Furthermore, what is the shutdown point for a perfectly competitive firm? If the market price that a perfectly competitive firm faces is above average variable cost, but below average cost, then the firm should continue producing in the short run, but exit in the long run. We call the point where the marginal cost curve crosses the average variable cost curve the shutdown point.

Beside this, what is breakeven and shutdown point?

The break even point is the point at which a company's revenues equal its expenses for a certain time period. The shut down point is the lowest price a company can use for a product to justify continuing to produce that product in the short term.

At what price should a firm shut down?

Looking at Table 8.6, if the price falls below $2.05, the minimum average variable cost, the firm must shut down. The intersection of the average variable cost curve and the marginal cost curve, which shows the price where the firm would lack enough revenue to cover its variable costs, is called the shutdown point.

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