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Chapter 8: Q. 23 (page 212)

What two lines on a cost curve diagram intersect at the shutdown point ?

Short Answer

Expert verified

The curves are average variable cost (AVC) and marginal cost (MC).

Step by step solution

01

Shut down point :

A shutdown point occurs when a business sees non-profit in ongoing operations and, as a response, chooses to shut down partially or permanently in certain cases.

02

Explanation :

These two curves are linked because marginal cost may be calculated from total variable cost. This is illustrated in the diagram below:

The marginal cost curves cross the average variable cost curve at its lowest point, as may be seen here.

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Most popular questions from this chapter

How does a perfectly competitive firm calculate total revenue?

Your company operates in a perfectly competitive market. You have been told that advertising can help you increase your sales in the short run. Would you create an aggressive advertising campaign for your product?

What two rules does a perfectly competitive firm apply to determine its profit-maximizing quantity of output?

Many firms in the United States file for bankruptcy every year, yet they still continue operating. Why would they do this instead of completely shutting down?

A firm’s marginal cost curve above the average variable cost curve is equal to the firm’s individual supply curve. This means that every time a firm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm’s individual supply curve if marginal costs increase?
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