Managerial Economics - Market Structure
Shut Down Point - Market Structure
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If the market price for the product is below minimum average variable cost, the firm will cease to produce, if this appears to be not just a temporary phenomenon.
Shut Down Point:
If the market price for the product is below minimum average variable cost, the firm will cease to produce, if this appears to be not just a temporary phenomenon. When the price is less than average variable cost it will neither cover fixed cost nor a part of the variable costs. Then the firm can minimize losses up to total fixed costs only by not producing. It is therefore regarded as the shut down point.
In the short run, a firm can be in equilibrium at various levels depending upon different cost and market price conditions. But these are temporary equilibrium points. Thus at this unstable equilibrium point the
Perfect competition ensures maximum welfare of the people as a whole. Each firm tends to attain the most efficient size to expand output and to reduce the average cost of production.
If the market price for the product is below minimum average variable cost, the firm will cease to produce, if this appears to be not just a temporary phenomenon. When the price is less than average variable cost it will neither cover fixed cost nor a part of the variable costs. Then the firm can minimize losses up to total fixed costs only by not producing. It is therefore regarded as the shut down point.
In the short run, a firm can be in equilibrium at various levels depending upon different cost and market price conditions. But these are temporary equilibrium points. Thus at this unstable equilibrium point the
Consequences Of Pure Competition
Perfect competition ensures maximum welfare of the people as a whole. Each firm tends to attain the most efficient size to expand output and to reduce the average cost of production.
Tags : Managerial Economics - Market Structure
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