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Watch The Video About The Short-Run Shut-Down Decisions

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Written Assignment Unit 6 Watch this video about the short-run shut down decision: https://www.youtube.com/watch?v=7XDEo2o-wm0&index=2&list=PLMrpXL7ZxXYXIStJLFOAoYv2hPDhXMNQB Explain in your own words why in the short run a firm may continue to produce even at a loss provided the price is more than the average variable cost. Also, provide an example (not from the video) of when a firm might face this decision. Include an analysis of how fixed and variable costs may affect shut-down decisions. Ensure you have presented your assignment in a logical format. Also ensure that you have the appropriate formatting to avoid plagiarism and the appropriate grammar (this may be achieved by using free tools available on the Internet). The short run is defined as a period at least one …show more content…

This means that the firm is operating under conditions where average cost exceeds average revenue. In such situations some firms will leave the industry but some will remain. Those firms which remain believe that they will be able to return to earning at least profits, which will cover their variable cost of production. A firm might face this decision of remaining open when earn enough revenue to cover at least its variable costs. According to OpenStax (2016),it can also remain open when it is making enough revenue to cover at least a portion of fixed costs. It has to keep going even if it is making losses in the short run, since at least the losses will be smaller than if the firm shuts down immediately and incurs a loss equal to total fixed costs (OpenStax, 2016, p. 191). Another facet of a firm remaining in business is that, if the price a firm is receiving is covering its average variable cost it will be covering the direct cost of production, which may make it able to be making some contributions to average fixed cost. Sometime even a situation where a business is having a price equal to minimum average variable cost, it can remain in

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