Question

A competitive firm maximizes profit at an output level of 500 units, market price is $24, and ATC is $24.50. At what range of AVC values for an output level of 500 would the firm choose not to shut down

Answer 1

A firm would shut down if its Current Price P < AVC (Current Price is less than the Average Variable Cost)

Thus, the condition for not shutting down of a firm is P > AVC (Current price is greater than the Average Variable Cost)

When AVC is less than $24, the firm will choose not to shut down because it is covering its variable costs at the current price