shut down price
The price where average revenue is equal to average variable cost. Below this price, the firm will shut down in the short run.
Shut down price refers to the minimum price a company must earn from the sale of its products or services to cover all of its fixed and variable costs without making any profit or loss. It is also known as the break-even price.
In other words, shut down price is the point at which a company is just able to cover its expenses and is not making any profits. If the company sells its products or services below the shut down price, it will not be able to cover its costs and will incur losses.
Calculating the shut down price is important for businesses to determine the minimum amount they must charge per unit to make a profit and avoid losses. To calculate the shut down price, companies need to consider their fixed costs such as rent, salaries, and insurance, as well as their variable costs such as raw materials, production costs, and marketing expenses.
Once these costs have been calculated, the shut down price can be determined by dividing the total fixed costs by the difference between the selling price and the variable cost per unit.
It is important for companies to regularly evaluate their shut down price to ensure that they are setting prices that cover their costs and allow them to make a profit in the long run.
More Answers:
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Understanding Break-Even Price: Importance, Calculation, and Examples for Businesses