Question

Is it possible that a firm should shut down even though it is maximizing profits?  Explain.

Answer 1

Firm will choose to implement a shut down of production where the Revenue received from the sale of the good or services produced can not even cover the variable cost of production.in that case firm will incur huge losses.hence it's not possible that a firm have maximum profit and wants to shut down.if firm is unable to recover variable cost then it's advisable to shut down.shutdown occur if average revenue is below average variable cost at the profit maximizing output level.