chapter6problem2-universityofhongkong-Chapter6.pptVIP

Shutdown point: the output and price at which the firm just covers its total variable cost. Firm is indifferent between continuing operations and shutting down. P MC min. AVC At price $17, P min. AVC, Both price and AVC equal $17, the firm just covers its TVC The firm is indifferent on staying or shutting down At the shutdown point, firm usually incurs loss. How could it be able to cover its TVC? As long as the Unit Contribution Margin equals to zero, this is the firm’s shutdown point. Unit Contribution Margin Unit Revenue Unit Price – Unit Variable Cost AVC Any point belo