The concept describes the fundamental principle of the shutdown point. It explains at what point shutdown occurs, the strengths and weaknesses of the concept and provides straightforward advice on calculating the shutdown point.
Shutdown Point Definition
A company will shut down in the short run if its average variable costs (AVC) exceed price at all output rates. The output at which price equals the AVC is called the shutdown point. At this rate of production the company is indifferent between producing and shutting down (McEachern, 2010).
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Shutdown Point References (4 of up to 20) *
- Adelman, M.A., Stangle, B.E. (1985) Profitability and Market Share. In: Fisher, F.M. (ed.) Antitrust and Regulation: Essays in Memory of John J. McGowan. MIT Press, US.
- Boyes, W., Melvin, M. (2008) Economics, Houghton Mifflin, US.
- Brito, D.L., Curl, R.F. (2010) Economics of Pricing Cost of Carbon Dioxide Restrictions in the Production of Electricity. James A. Baker III Institute for Public Policy. Available at: http://www.bakerinstitute.org/publications/BI-pub-BritoCurlCO2ElecEcon-070210.pdf.
- Carney, D. (2001) Commentary: Predatory Pricing: Cleared for Takeoff. BusinessWeek, May 14. Available at: http://www.businessweek.com/magazine/content/01_20/b3732075.htm.
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