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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

Can you name five examples of perfectly competitive markets? Why or why not?

Should a firm shut down immediately if it is making losses?

Will a perfectly competitive market display allocative efficiency? Why or why not?

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

How does the average variable cost curve help a firm know whether it should shut down immediately?
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