Shut Down Rule
Definition
The shut down rule is a decision-making guideline for firms in the short run. It states that a firm should shut down production if the price falls below its average variable cost.
Related terms
Average Variable Cost (AVC): The average variable cost is the total variable cost divided by the quantity produced. It represents the cost per unit of producing additional units.
Short Run: The short run refers to a period of time where some factors of production are fixed, such as capital or plant size.
Marginal Cost (MC): Marginal cost is the change in total cost when one more unit is produced. It helps firms determine whether it's profitable to produce additional units.
"Shut Down Rule" appears in:
Additional resources (1)
AP Microeconomics - Unit 3 Overview: Production, Cost, and the Perfect Competition Model
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Cram Mode
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© 2024 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.