Final answer:
The opportunity cost is not zero if a firm produces nothing, as it will still incur fixed costs. The shutdown point is the price below which a firm should cease production, and long-run equilibrium in a perfectly competitive market is where firms make zero economic profits with perfect allocative and productive efficiency.
Step-by-step explanation:
If a firm produces nothing, the opportunity cost is not necessarily zero. In the context of a firm facing potential losses, the concept of the shutdown point becomes crucial. This is the situation where a firm must decide whether to continue operating or to shut down production. It's important to note that shutting down a firm can eliminate variable costs, but fixed costs, which are expenses that have already been incurred and cannot be recovered in the short run, still need to be paid. Therefore, even if a firm is producing nothing, it would still incur losses due to these fixed costs.
The shutdown point is reached when the market price falls below the average variable cost at the profit-maximizing level of output. At this point, a perfectly competitive firm should cease operations immediately. Conversely, if the market price is below the average total cost but above the average variable cost, the firm should continue producing in the short run but prepare to exit the market in the long run. The zero profit point, another important concept, occurs when the market price is equal to the average cost; at this point, the firm is earning zero economic profits.
In perfectly competitive markets, long-run equilibrium is reached when all firms make zero economic profits, indicating that the market price is equal to the average cost at the profit-maximizing output. Both allocative and productive efficiencies are met in this scenario, characterizing the market as 'perfect'.