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Question
Under perfect competition, at the shut down point, revenue earned by the firm covers which cost?
Under perfect competition, at the shut down point, revenue earned by the firm covers which cost?
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Solution
The correct option is C AVC
A shutdown point is a level of operations at which a company experiences no benefit for continuing operations, and therefore decides to shut down temporarily (or in some cases permanently). It results from the combination of output and price where the company earns just enough revenue to cover its total variable costs. The shutdown point denotes the exact moment when a company’s (marginal) revenue is equal to its variable (marginal) costs - in other words, it occurs when the marginal profit becomes negative.
A shutdown point is a level of operations at which a company experiences no benefit for continuing operations, and therefore decides to shut down temporarily (or in some cases permanently). It results from the combination of output and price where the company earns just enough revenue to cover its total variable costs. The shutdown point denotes the exact moment when a company’s (marginal) revenue is equal to its variable (marginal) costs - in other words, it occurs when the marginal profit becomes negative.
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