Which of the following statement (s) is/are correct?

Statement 1: The short run shut down point of the firm is the point where the SMC curve cuts the SAC curve .

Statement 2: In the long run, the shut down point is the minimum of LRMC curve

None of the given statement is correct.

The correct answer is Option 4: None of the given statement is correct.

Statement 1: Incorrect

• The short-run shutdown point is the point where the SMC (Short-Run Marginal Cost) curve intersects the AVC (Average Variable Cost) curve at its minimum, not the SAC (Short-Run Average Cost) curve.
• If P < AVC, the firm cannot cover its variable costs and must shut down.
• The correct shutdown condition in the short run is P = min(AVC), not P = min(SAC).

Statement 2: Incorrect

• In the long run, all costs are variable, and firms exit the market when price falls below the minimum of the Long-Run Average Cost (LRAC) curve, not the Long-Run Marginal Cost (LRMC) curve.
• The long-run shutdown point is at P = min(LRAC), because if price is below LRAC, firms cannot cover their total costs and will exit the market.

"In the short run the firm continues to produce as long as the price remains greater than or equal to the minimum of AVC. Therefore, 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."