Question

A firm's marginal cost has a minimum value of $80, its average variable cost has a minimum value of $90, and its average total cost has a minimum value of $100. Then the firm will shut down in the short run once the price of its product falls below Select one:

Answer 1

A firm shuts down in the long run when the price of the good it is producing falls below the minimum average total cost, because in the long run the firm wont be able to make any profit. In the short run the firm only shuts down if the the price of the good falls below the minimum average variable cost because in the short run the firm has already payed the fixed costs and these costs are sunk costs so if the price of the good is more than the variable cost then they can minimize their losses. So in this case the firm has a minimum average variable cost of $90 so the firm will shut down in the short term when the price falls below $90.

Step-by-step explanation: