b) Shut-down points

c) short-run and long-run shut-down points: diagrammic analysis

some firms continue producing when they experience losses in the hope that they will soon make a profit

in the short-run

• if the selling price ≤ AVC

  • the firm cannot cover the AFC → the firm is making a loss and should shut down

in the long-run

• if the selling price ≤ ATC

  • the firm cannot cover the ATC → the firm is making a loss and should shut down