Answer to Question #206783 in Microeconomics for tsss

Question

(i) Under what conditions firm will shut down temporarily? Explain.

Answer 1

During the short run, if a firm is not able to recover the fixed costs, it will prefer to temporarily shut down when the price of products tend to be less compared to average variable cost. On the other case, during the long run, if a firm is unable to recover variable and fixed costs, the firm will choose on exiting when the price of goods tend to be less compared to average total cost.