The short -run shutdown price for a perfectly competitive firm is where price equals: a

Economics Dec 07, 2020

The short -run shutdown price for a perfectly competitive firm is where price equals:

a. Minimum AVC
b. AR
c. Minimum ATC
d. MR

Expert Solution

The short-run shutdown price for a perfectly competitive firm is where price equals a. Minimum AVC.

A perfectly-competitive firm will always produce at the point where P=MCP=MC in order to maximize its profits. In the short-run, the firm will continue operating as long as the market price exceeds its average variable cost P>AVCP>AVC. If P<AVCP<AVC, then the firm will shut down. Since the marginal cost crosses the average variable cost at its minimum, then the minimum price that a competitive firm will be willing to accept in the short-run is P=MC=AVCminP=MC=AVCmin, which is the shutdown price for the firm.

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