The shut-down rule tells us that a firm will shut down in the short run when
A) too many workers are hired due to a union
B) it costs more to continue operations than to produce zero
C) it has no fixed costs
D) profits cannot be maximized

Question

Quizplus · Accepted Answer

The shut-down rule states that a firm will shut down in the short run when the revenue it would earn from producing is less than its variable costs, or equivalently, when the price is below the minimum of the average variable cost. This is because it costs more to continue operations than to produce nothing at all.

The Shut-Down Rule Tells Us That a Firm Will Shut