Microeconomics: Principles, Applications, and Tools (8th Edition)

Published by Prentice Hall
ISBN 10: 0-13294-886-9
ISBN 13: 978-0-13294-886-9

Chapter 9 - Perfect Competition - Exercises - 9.3 The Firm's Shut-Down Decision - Page 229: 3.5

Answer

shut down close down

Work Step by Step

The price will fall below the shut-down price. A firm will close down as well as the industry. The shutdown price is the minimum price equal to average variable cost (AVC). When the market price falls below this level, the firm cannot cover its variable costs and will temporarily cease operations.
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