$31.50

TABLE 8.6 Cost of Production for the Raspberry Farm
200 8 • Perfect Competition

The intersection of the average variable cost curve and the marginal cost curve, which shows the price below

which the firm would lack enough revenue to cover its variable costs, is called the shutdown point. If the

perfectly competitive firm faces a market price above the shutdown point, then the firm is at least covering its

average variable costs. At a price above the shutdown point, the firm is also making enough revenue to cover at

least a portion of fixed costs, so it should limp ahead even if it is making losses in the short run, since at least

those losses will be smaller than if the firm shuts down immediately and incurs a loss equal to total fixed costs.

However, if the firm is receiving a price below the price at the shutdown point, then the firm is not even

covering its variable costs. In this case, staying open is making the firm’s losses larger, and it should shut down
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