Answer to Question #297681 in Microeconomics for BAi

Question

Why is the firm to stop production if AVC falls below the P=MR line? 

Answer 1

It's because the corporation is at a point where continuing production operations in the short term isn't profitable, and revenue from product sales isn't enough to pay variable production expenses. It denotes the point at which continuing production will result in higher and escalating losses, as opposed to lower losses if production is halted. When marginal profit reaches a negative scale, a shutdown point occurs.