Examples of shutdown in the following topics:
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- A firm will implement a production shutdown if the revenue from the sale of goods produced cannot cover the variable costs of production.
- Producing a lower output would only add to the financial losses, so a complete shutdown is required.
- When determining whether to shutdown a firm has to compare the total revenue to the total variable costs.
- The decision to shutdown production is usually temporary.
- Shutdowns are short run decisions.
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- Instead, during a shutdown the firm is only paying the fixed costs.
- A short run shutdown is designed to be temporary: it does not mean that the firm is going out of business.
- In a perfectly competitive market, the short run supply curve is the marginal cost (MC) curve at and above the shutdown point.
- The portions of the marginal cost curve below the shutdown point are no part of the supply curve because the firm is not producing in that range.
- The short run supply curve is the marginal cost curve at and above the shutdown point.
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- Shutdown: The price is below average variable cost at the profit-maximizing output.
- Production should be shutdown because every unit produced increases loss.
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- So long as the price is above CC, the firm is recovering all the variable cost and a little more to offset the fixed cost that it would have lost if the firm would have shutdown.
- Point C, at a price of CC and output of QC is called the shutdown point.
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- There are a few similarities between the two including: the cost functions are the same, both minimize cost and maximize profit, the shutdown decisions are the same, and both are assumed to have perfectly competitive market factors.
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- The shutdown decisions are the same, and both are assumed to have perfectly competitive factors markets.