Shutdown (economics) - Calculating The Shutdown Point

Calculating The Shutdown Point

The short run shutdown point is the minimum of the average variable cost curve. Assume that firms total cost function is TC = Q3 -5Q2 +60Q +125. Variable cost = Q3 -5Q2 +60Q Average variable costs = (Q3 -5Q2 +60Q)/Q= Q2 -5Q + 60

  • AVC' = 2Q - 5
  • AVC' = 0
  • 2Q - 5 = 0
  • 2Q = 5
  • Q = 2.5

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