If a firm shuts down temporarily, it will incur loss equal to

1.	If a firm shuts down temporarily, it will incur loss equal to
Answer» TFC If a firm shuts down temporarily, it will incur loss equal to TFC. The intersection of the average variable cost CURVE and the marginal cost curve, which shows the price where the firm would lack enough revenue to cover its variable costs, is CALLED the shutdown point. If the perfectly competitive firm can CHARGE a price above the shutdown point, then the firm is at least covering its average variable costs. It is also making enough revenue to cover at least a portion of fixed costs, so it should LIMP ahead even if it is making losses in the short RUN, since at least those losses will be smaller than if the firm shuts down immediately and incurs a loss equal to total fixed costs.

Answer»

TFC

If a firm shuts down temporarily, it will incur loss equal to TFC. The intersection of the average variable cost CURVE and the marginal cost curve, which shows the price where the firm would lack enough revenue to cover its variable costs, is CALLED the shutdown point. If the perfectly competitive firm can CHARGE a price above the shutdown point, then the firm is at least covering its average variable costs. It is also making enough revenue to cover at least a portion of fixed costs, so it should LIMP ahead even if it is making losses in the short RUN, since at least those losses will be smaller than if the firm shuts down immediately and incurs a loss equal to total fixed costs.

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