Answer to Question #306953 in Microeconomics for lydia

Question

explain competitive firm short - run shutdown decision rule

Answer 1

In the short run, if a firm is operating at a loss i.e., where the revenue is less that the total cost or the price is less than the unit cost can decide to operate or shutdown temporarily. The shutdown rule states that “in the short run a firm should continue to operate if price exceeds average variable costs.