Why should a firm shutdown if both its average total costs and average variable costs exceed the market price?
1 Answer
Oct 19, 2015
The price is not sufficient to cover even the variable cost. Hence the firm goes for shutdown.
Explanation:
Average Total Cost includes Average Variable Cost. It is the sum total of AFC and AVC. If the market price is not high enough to cover at least the Variable Cost, the firm will shutdown its business. The minimum point of the AVC curve is the shutdown point.
Watch this video on 'Shutdown point.
