quantity of 60. This price is below average variable cost for this level of output. If the farmer cannot pay

workers (the variable costs), then it has to shut down. At this price and output, total revenues would be $90

(quantity of 60 times price of $1.50) and total cost would be $165, for overall losses of $75. If the farm shuts

down, it must pay only its fixed costs of $62, so shutting down is preferable to selling at a price of $1.50 per

pack.

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8.2 • How Perfectly Competitive Firms Make Output Decisions 199

FIGURE 8.6 The Shutdown Point for the Raspberry Farm In (a), the farm produces at a level of 65. It is making

losses of $47.50, but price is above average variable cost, so it continues to operate. In (b), total revenues are $90

and total cost is $165, for overall losses of $75. If the farm shuts down, it must pay only its fixed costs of $62.

Shutting down is preferable to selling at a price of $1.50 per pack.
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