Principles of Microeconomics / Unit 7 MIC 0614 short lesson, about 20 seconds
The Shutdown Rule
Captions available
The idea
A firm shuts down in the short run when price is below average variable cost. Above it, revenue covers variable cost and some fixed cost, so producing loses less.
In practice
Below average variable cost every unit adds to the loss.
Where people slip
The test is average variable cost, not average total cost; below total cost a firm can still be right to operate.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
Something wrong in this lesson? Flag it