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Question
Where does a competitive firm's short-down point occur?
Short Answer
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Solution
The profit-maximizing level of output of a competitive firm meets the following conditions:
- Average pricing CP = Marginal Cost (MC).
- MC is increasing.
- P > AVC (Average variable cost).
As a result, the shutdown point occurs when P = AVC. If P is less than the minimum AVC, the corporation will stop manufacturing.
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