Explain the shut down point, Managerial Economics

Assignment Help:

Q. Explain the Shut down point?

ShutdownPoint: With MR = MC, firm attains equilibrium at point E where it produces OM amount of the output. To produce this output, firm incurs an average cost of MF whereas it earns average revenue ME. At equilibrium MF > ME, firm incurs a loss of EF per unit of output produced. Because the total revenue earned is only OPEM, whereas the total cost incurred is ORFM, firm incurs a total loss of PRFE. Loss incurred is too much for this firm to continue, as this firms' AVC curve is also above its AR = MR curves - i.e. it's unable to cover even its AVC. In the above condition, at output OM, firm's AVC, is equal to MG that is greater than AR = ME. Therefore this firm isn't even recovering its daily or running expenses so it should shut down.

1242_Explain the Shut down point.png

Figure: Shut down point


Related Discussions:- Explain the shut down point

Banking system, T HE BANKING SYSTEM Consists of all those institutions...

T HE BANKING SYSTEM Consists of all those institutions which determine the supply of money.  The main element of the Banking System is the Commercial Bank (in Kenya).  The sec

Time series, the table shows gasoline rates in US

the table shows gasoline rates in US

What are tools of factor markets and distribution of income, What are the t...

What are the tools of factor markets and the distribution of income? Tools of factor markets and the distribution of income: a. Factor distribution of income b. Marginal

Objectives of icas, Objectives of ICAs Most schemes have as their main...

Objectives of ICAs Most schemes have as their main objective to stabilize and/or increase the world price of commodity, producers' incomes, foreign exchange earnings of export

Cost Analysis, Michael was discussing the importance of production analysis...

Michael was discussing the importance of production analysis and cost analysis to managerial economics with a final year Open Campus student. The final year student, Catherine, sta

Policies to cure balance of payment deficits, Policies to cure Balance of P...

Policies to cure Balance of Payment deficits The measures available to tackle balance of payments deficits include short term measures such as deflation, import controls, dev

Economic Model of a Company, I can''t figure out the economic model of a co...

I can''t figure out the economic model of a company that I''m supposed to write a report about. The company is a tier 2 supplier, and over the years has bought out several subsidia

Define the managerial economics, Define the Managerial economics Manag...

Define the Managerial economics Managerial economics is thus a study of application of managerial skills in economics. It assists in determining, anticipating and resolving po

Brief note, principles of time perspectives

principles of time perspectives

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd