Skip to main content
Back

Short Run Shutdown Decision definitions

Control buttons has been changed to "navigation" mode.
1/15
  • Short Run
    A period when certain production costs remain unchanged, requiring payment regardless of output.
  • Shutdown Point
    The lowest price at which production covers variable costs, below which output ceases temporarily.
  • Sunk Cost
    An unrecoverable expense, such as prepaid rent, that remains regardless of future production choices.
  • Fixed Cost
    A constant expense, like factory rent, paid even when no goods are produced.
  • Variable Cost
    An expense that changes with output, such as seed purchases for each production cycle.
  • Average Variable Cost
    The per-unit expense of variable inputs, crucial for determining whether to continue production.
  • Average Total Cost
    The sum of all expenses per unit, used to assess profitability at different output levels.
  • Marginal Cost
    The extra expense incurred from producing one more unit, guiding optimal output decisions.
  • Marginal Revenue
    The additional income from selling one more unit, equal to market price in perfect competition.
  • Profit
    The surplus of total income over total expenses, indicating financial success at a given output.
  • Loss
    The deficit when total expenses exceed total income, often minimized by strategic production choices.
  • Perfect Competition
    A market structure where firms are price takers, and marginal revenue equals market price.
  • Exit
    A permanent withdrawal from a market, ending all future production and cost obligations.
  • Demand Curve
    A graphical representation of market price and quantity, typically horizontal for individual firms.
  • Revenue
    The total income generated from sales, used to compare against variable and fixed expenses.