what condition will a firm shut down temporarily?
Answers
Answer:
In the short run, when a firm cannot recover its fixed costs, the firm will choose to shut down temporarily if the price of the good is less than average variable cost. In the long run, when the firm can recover both fixed and variable costs, it will choose to exit if the price is less than average total cost.
Explanation:
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What condition will a firm shut down temporarily?
A firm can shut down its work temporarily in that situation, that a firm is not able to recover its fixed costs, that is, the average cost of its production is less than the variable cost. So in such a situation a firm would prefer to temporarily shut down its operations in the short run.
It means to say that when a firm is not able to recover even the cost of its product and it becomes a loss situation. Then such a firm shuts itself down temporarily, so that it can resume its operations once the market prices stabilize and reach a profit position.
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