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The Shutdown Decision
The shutdown point: the minimum AVC point
The breakeven poin: the minimum ATC point
[Practice Problems] A company has total variable costs of $4 million and fixed costs of $3 million. Based on this information, the company will stay in the market in the long term if total revenue is at least:
A. $3.0 million.
B. $4.5 million.
C. $7.0 million.
[Solutions] C
A company will stay in the market in the long term if total revenue is equal to or greater than total cost. Because total costs are $7 million ($4 million variable costs and $3 million fixed costs), the company will stay in the market in the long term if total revenue equals at least $7 million.
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