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wrote...
Posts: 151
2 months ago
What is the short-run shutdown price? Using a graph and a market price of P, show that losses are less when shutting down than when producing.
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Economics Today: The Micro View
Edition: 19th
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Posts: 207
2 months ago
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The short-run shutdown price is the price that equals the minimum point on the short-run average variable cost curve. At any price lower than this the firm should shut down and produce nothing. In the above figure, the price is below the shutdown price. Its fixed costs equal area CADE, so if it shuts down, this area equals its losses. If it produces where MR = MC, the firm's losses are CAFP, which are more than the losses with shutting down.
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