A competitive firm's shutdown price is equal to the minimum value of the firm's
A) marginal cost.
B) average cost.
C) average variable cost.
D) fixed and sunk costs.

Question

Quizplus · Accepted Answer

The shutdown price is the price at which the firm's revenue is not enough to cover its variable costs. Therefore, the firm would be better off shutting down than continuing to operate at a loss. This occurs when the price is equal to the average variable cost, as this is the minimum cost that must be covered to keep the firm operating in the short run. The minimum value of average cost or marginal cost may not be sufficient to cover variable costs and thus would not accurately determine the shutdown price. Fixed and sunk costs do not factor into the decision to shut down in the short run.

A Competitive Firm's Shutdown Price Is Equal to the Minimum