Checking to see whether the most profitable positive sales quantity results in a greater profit than not producing at all is the basis of what rule?
A) Interior Action Rule
B) Quantity Rule
C) Shut-down Rule
D) Profit-maximizing Rule

Question

Quizplus · Accepted Answer

The shut-down rule states that a firm should shut down production if the price of the product falls below the minimum average variable cost (MAVC) of production. This is because producing at a price lower than the MAVC would result in a loss, and it would be better for the firm to not produce at all and minimize losses. Therefore, the shutting down decision is based on whether producing at the most profitable positive sales quantity (which is still lower than the MAVC) results in a greater profit than not producing at all.

Checking to See Whether the Most Profitable Positive Sales Quantity