Competitive business firms that earn a loss in the short-run should shutdown if price (P) is lesser than average variable cost (AVC).
What is an average variable cost?
An average variable cost (AVC) can be defined as the cost of production per unit item incurred by a business firm and divided by total output of production. Thus, it's calculated by dividing total variable cost (TVC) by total output of production.
As a general rule in Economics, competitive business firms that earn a loss in the short-run are advised to shutdown their production when price (P) is lesser than average variable cost (AVC).
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