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A firm encounters its “shutdown point” when:
- a)average total cost equals price at the profit-maximizing level of output
- b)average variable cost equals price at the profit-maximizing level of output
- c)average fixed cost equals price at the profit-maximizing level of output
- d)marginal cost equals price at the profit-maximizing level of output
Correct answer is option 'B'. Can you explain this answer?
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Most Upvoted Answer
A firm encounters its “shutdown point” when:a)average tota...
Explanation:
The shutdown point is the point at which a firm is no longer able to cover its variable costs and therefore decides to shut down production. At this point, the firm is not making any profit and would actually be better off shutting down.
The correct option is 'B': average variable cost equals price at the profit-maximizing level of output. This is because the firm's variable costs must be covered by the revenue obtained from selling its output. If the price of the output falls below the average variable cost, the firm will not be able to cover its variable costs and will need to shut down.
Some additional points to consider:
- The profit-maximizing level of output is the point at which marginal revenue equals marginal cost.
- Average total cost includes both fixed and variable costs, so it is not necessarily the relevant cost measure for determining the shutdown point.
- Marginal cost is not directly relevant for determining the shutdown point, as it only reflects the additional cost of producing one more unit, rather than the total cost of production.
The shutdown point is the point at which a firm is no longer able to cover its variable costs and therefore decides to shut down production. At this point, the firm is not making any profit and would actually be better off shutting down.
The correct option is 'B': average variable cost equals price at the profit-maximizing level of output. This is because the firm's variable costs must be covered by the revenue obtained from selling its output. If the price of the output falls below the average variable cost, the firm will not be able to cover its variable costs and will need to shut down.
Some additional points to consider:
- The profit-maximizing level of output is the point at which marginal revenue equals marginal cost.
- Average total cost includes both fixed and variable costs, so it is not necessarily the relevant cost measure for determining the shutdown point.
- Marginal cost is not directly relevant for determining the shutdown point, as it only reflects the additional cost of producing one more unit, rather than the total cost of production.
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Community Answer
A firm encounters its “shutdown point” when:a)average tota...
Shut down point occurs when a firm is just covering its variable costs only or it is a situation when:
TR=TVC
OR TR/Q=TVC/Q
OR AR=AVC
TR=TVC
OR TR/Q=TVC/Q
OR AR=AVC
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A firm encounters its “shutdown point” when:a)average total cost equals price at the profit-maximizing level of outputb)average variable cost equals price at the profit-maximizing level of outputc)average fixed cost equals price at the profit-maximizing level of outputd)marginal cost equals price at the profit-maximizing level of outputCorrect answer is option 'B'. Can you explain this answer?
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A firm encounters its “shutdown point” when:a)average total cost equals price at the profit-maximizing level of outputb)average variable cost equals price at the profit-maximizing level of outputc)average fixed cost equals price at the profit-maximizing level of outputd)marginal cost equals price at the profit-maximizing level of outputCorrect answer is option 'B'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A firm encounters its “shutdown point” when:a)average total cost equals price at the profit-maximizing level of outputb)average variable cost equals price at the profit-maximizing level of outputc)average fixed cost equals price at the profit-maximizing level of outputd)marginal cost equals price at the profit-maximizing level of outputCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A firm encounters its “shutdown point” when:a)average total cost equals price at the profit-maximizing level of outputb)average variable cost equals price at the profit-maximizing level of outputc)average fixed cost equals price at the profit-maximizing level of outputd)marginal cost equals price at the profit-maximizing level of outputCorrect answer is option 'B'. Can you explain this answer?.
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