What is the shutdown rule for firms?
What is the shutdown rule for firms? The shutdown rule states that a firm should continue operations as long as the price (average revenue) is able to cover average variable costs. What is a shut down rule? Conventionally stated, the shutdown rule is: "in the short run a firm should continue to operate if price equals or exceeds average variable costs." Restated, the rule is that to produce in the short run a firm must earn sufficient revenue to cover its variable costs. The rationale for the rule is straightforward. How is shutdown price calculated? A business needs to make...