The shutdown price (or shutdown point) is the minimum price at which a business can keep operating in the short term. This point occurs when the market price equals the minimum average variable cost (AVC).

Key points:

• If price is less than AVC: The firm should shut down because it cannot even cover its daily operating expenses.
• If price is equal to or greater than AVC: The firm should continue producing, as it is covering its variable costs and helping to pay for fixed costs.
• The shutdown price is different from the break-even price.

Decision Guide:

• Price < Minimum AVC: Shut down immediately to minimize losses.
• Minimum AVC < Price < Minimum AC: Continue producing; the firm loses money, but less than it would by shutting down completely.
• Price ≥ Minimum AC: The firm is breaking even or making a profit.