Shut down price

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Shut down price

  1. 1. A2 MicroShut Down PriceTutor2u, Summer 2013
  2. 2. Cost ,PriceQuantity of outputPlant close-downs and market exitMCACAVCRemember that MCalways cuts AC and AVCat the minimum points
  3. 3. Cost ,PriceQuantity of outputPlant close-downs and market exitMCACAVCARMRQ1P1
  4. 4. Cost ,PriceQuantity of outputPlant close-downs and market exitMCACAVCARMRQ1P1C1
  5. 5. Cost ,PriceQuantity of outputPlant close-downs and market exitMCACAVCARMRQ1P1C1Business is making a losshere because P < ACi.e. sub-normal profit
  6. 6. Cost ,PriceQuantity of outputShowing the shut down price and the normal profit price on a diagram –assume this firm is operating in a perfectly competitive marketMCACAVC
  7. 7. Cost ,PriceQuantity of outputShowing the shut down price and the normal profit price on a diagram –assume this firm is operating in a perfectly competitive marketMCACAVCP1P1: Price = average cost,normal profits made
  8. 8. Cost ,PriceQuantity of outputShowing the shut down price and the normal profit price on a diagram –assume this firm is operating in a perfectly competitive marketMCACAVCP2P1P1: Price = average cost,normal profits madeP2: Price = averagevariable cost P=Min AVC is the shut downprice for a competitive firmin short runThe Shut-Down price ismainly a short runconcept
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