Question

The shut down point

Group of answer choices

always means bankruptcy

is when price is equal to fixed cost

is when a firm will be better off if it shuts down than it will be if it stays in business

is when price is less than average total cost

Answer 1

In simple words if we talk then firms occur two type of costs that are-

Fixed cost and variable cost

Fixed cost are those cost which are constant in the short run

Examples can be building, machinery etc

Second one is variable cost

It is that type of cost which increases as the production increases

When a form is close to shutdown it means it is not able to manage even variable cost

So in shutdown, price is less than the average and ultimately it experiences loss producing goods or the service

The other condition is also when average revenue is below the average variable cost

Hence the correct answer is option E