Distinguish:(a) Break even point (b) Shutdown point

1.	Distinguish:(a) Break even point (b) Shutdown point
Answer» (a) The point on the supply curve at which a rm earns normal profit is called the break even point. The point of minimum average cost at which the supply curve cuts the LRAC curve is therefore the break even point of a firm. (b) In the short run the rm continues to produce as long as the price remains greater than or equal to the minimum of AVC. Therefore, along the supply curve as we move down, the last price output combination at which the firm produces positive output is the point of minimum AVC where the SMC curve cuts the AVC curve. Below this, there will be no production. This point is called the short run shutdown point of the firm. In the long run, the shut down point is the minimum of LRAC curve.

Answer»

(a) The point on the supply curve at which a rm earns normal profit is called the break even point. The point of minimum average cost at which the supply curve cuts the LRAC curve is therefore the break even point of a firm.

(b) In the short run the rm continues to produce as long as the price remains greater than or equal to the minimum of AVC. Therefore, along the supply curve as we move down, the last price output combination at which the firm produces positive output is the point of minimum AVC where the SMC curve cuts the AVC curve. Below this, there will be no production. This point is called the short run shutdown point of the firm. In the long run, the shut down point is the minimum of LRAC curve.

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