Attributed to Libby Rittenberg and Timothy Tregarthen Saylor.org Figure 9.9 "Shutting Down" shows a case where the price of radishes drops to $0.10 per pound.. Price is less than average
Trang 1Attributed to Libby Rittenberg and Timothy Tregarthen Saylor.org
Figure 9.9 "Shutting Down" shows a case where the price of radishes drops
to $0.10 per pound Price is less than average variable cost, so Mr Gortari
not only would lose his fixed cost but would also incur additional losses by
producing Suppose, for example, he decided to operate where marginal
cost equals marginal revenue, producing 1,700 pounds of radishes per
month Average variable cost equals $0.14 per pound, so he would lose
$0.04 on each pound he produces ($68) plus his fixed cost of $400 per
month He would lose $468 per month If he shut down, he would lose only
his fixed cost Because the price of $0.10 falls below his average variable
cost, his best course would be to shut down
Figure 9.9 Shutting Down
The market price of radishes drops to $0.10 per pound, so MR 3 is below
Mr Gortari’sAVC Thus he would suffer a greater loss by continuing to
operate than by shutting down Whenever price falls below average
variable cost, the firm will shut down, reducing its production to zero
Shutting down is not the same thing as going out of business A firm shuts
down by closing its doors; it can reopen them whenever it expects to cover