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    Shut down point

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    Marginal analysis:

    Let's suppose an airline is told by its accountants that the full cost of transporting one passenger from San Francisco to Boston is $300. Can the airline profit by offering a reduced fare of $200 to students who fly on a standby basis?

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    Solution Preview

    Here we can use the concept of Marginal Costing. The firm should operate such as to avoid the shut down. Thus it should analyze its Shut Down point. This will be 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 Average Variable Cost curve at which Average Variable Cost=Marginal Cost.

    "Variable costs," which increase directly in proportion to the level of sales in dollars or units sold. Depending on ...

    Solution Summary

    This helps in computation of shut down point.