Glossary · Micro · Perfect competition

Shutdown rule

In the short run a firm should keep producing as long as price covers average variable cost, even if it is making a loss, because fixed costs are owed either way. If price falls below minimum AVC it should shut down and lose only its fixed cost.

Also called: shutdown point

Taught in: The Shutdown Decision

Related terms

Average variable cost (AVC)Fixed cost (FC)Sunk costShort-run supply curve

More from perfect competition

Long-run competitive equilibriumMarginal revenue (MR)Market structureMR = MC rulePerfect competitionPrice taker

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