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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

Why does entry occur?

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?

Look at Table 8.13. What would happen to the firm鈥檚 profits if the market price increases to $6 per pack of raspberries?

Explain how the profit-maximizing rule of setting P = MC leads a perfectly competitive market to be allocatively efficient.

Explain in words why a profit-maximizing firm will not choose to produce at a quantity where marginal cost exceeds marginal revenue.
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