Explore BrainMass

Shutdown point and short run

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

What is the shutdown point? Give an example. How is the short-run defined in the production process? Please provide references if applicable.

https://brainmass.com/economics/factors-of-production/shutdown-point-short-run-185162

Solution Preview

We have to consider what is the meaning of the shut down point.
Shut down point is the output level at which price is less than average variable cost. Thus its the point where the firm can close its operations.

Example
The firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage (per worker) is \$80, and the price of the firm's output is \$25. The cost of other variable inputs is \$400,000 per day.

We have to consider what is the meaning of the shut down point. The output level at which price equals average variable cost and losses equal total fixed costs, whether the firm produces or not.

Also the lowest point on the AVC curve at which AVC=MC.
Now here Total Variable ...

Solution Summary

This explains the shut down point and short run in detail.

\$2.19