In a perfectly competitive market, the last price-output combination on the supply curve at which the firm produces positive output is the point of minimum AVC where the SMC curve cuts the AVC curve. What is this point called?
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: Shut down point
Along the supply curve as we move down, the last price-output combination at which the firm produces positive output is the point of minimum AVC where the SMC curve cuts the AVC curve. Below this, there will be no production. This point is called the short run shut down point of the firm. In the long run, however, the shut down point is the minimum of LRAC curve.