Question

The table below shows the cost information for a firm in a perfectly competitive industry. What would be the shut down price for this firm? Q VC MC AFC AVC ATC FC 250 0 250 20 250.0 20 38 250 TC 250 270 288 304 321 339 18 1 2 3 4 125.0 54 16 71 89 17 18 5 250 250 250 250 250 250 359 20 6 7 381 22 109 131 155 181 209 239 20.0 19.0 18.0 17.8 17.8 18.2 18.7 19.4 20.1 20.9 21.7 22.6 23.5 8 270.0 144.0 101.31 80.3 67.8 59.8 54.4 50.6 47.9 45.9 44.5 43.4 42.7 42.2 83.3 62.5 50.0 41.7 35.7 31.3 27.8 25.0 22.7 20.8 19.2 17.9 24 26 9 250 10 405 431 459 489 521 555 591 28 30 250 250 250 250 250 11 12 13 14 271 32 34 305 341 36 24.4

Answer 1

In perfectly competitive market shut down price is where MC = AVC or when MC start increasing above AVC. When MC> AVC then firm is not able to generate enough revenue to cover the cost . So it have to shut down .

Shut down does not depend on Fixed cost .As FC is already paid doesn'tchange with change in output.

AT MC = 18 and AVC = 17.8 , after this MC>AVC so this is shut down quantity . At quantity 5 MC>AVC so this is shut down quantity .

In perfectly competitive market P= MC . So P=18.

At quantity =5 and Price = 18 is firm shut down price of firm .