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Shutdown (economics)
In economics, a firm will choose to implement a shutdown of production when the revenue received from the sale of the goods or services produced cannot even cover the variable costs of production. In that situation, the firm will experience a higher loss when it produces, compared to not producing at all.
Technically, shutdown occurs if marginal revenue is below average variable cost at the profit-maximizing positive level of output. Producing anything would not generate revenue significant enough to offset the associated variable costs; producing some output would add losses (additional costs in excess of revenues) to the costs inevitably being incurred (the fixed costs). By not producing, the firm loses only the fixed costs.
==Explanation==
The goal of a firm is to maximize profits or minimize losses. The firm can achieve this goal by following two rules. First, the firm should operate, if at all, at the level of output where marginal revenue equals marginal cost. Second, the firm should shut down rather than operate if it can reduce losses by doing so.〔Perloff, J. (2009) p.231.〕
〔Lovell (2004) p.243.〕
抄文引用元・出典: フリー百科事典『 ウィキペディア（Wikipedia）』
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