Question

Suppose a cost function of the form C(q)=aq³+bq²+cq+d where a=0.5,b=−2,c=30 and d=150. Suppose this firm faces perfect competition. In the short run, what is the "shutdown price," i.e., the price below which the firm would be better off producing q=0 ?

Answer 1

The shutdown price is the price at which a firm would be better off producing zero quantity and shutting down operations.

Step-by-step explanation:

The shutdown price is the price at which a firm would be better off producing zero quantity and shutting down operations. In the short run, if the market price is below the average variable cost at the profit-maximizing quantity of output, the firm should shut down immediately. In this case, the firm would not be able to cover its variable costs and staying open would result in larger losses. Therefore, the shutdown price for this firm would be the price at which the market price is less than the average variable cost.