Concept:The shutdown point for a firm in the short run occurs when the price falls below average variable cost.
Explanation:A firm should shut down production when the revenue from sales cannot cover its variable costs.
Variable costs are costs that change with output, such as raw materials and wages.
If price is greater than average variable cost (
P>AVC), the firm continues producing to minimise losses.
If average variable cost is greater than price (
AVC>P), the firm is better off stopping production.
This is because continuing to produce would increase losses beyond the fixed costs already incurred.
Therefore, the shutdown condition is
AVC>price.
Answer:Option C:
AVC>price