Question

Take a look at Figure 23-5, and suppose that the price per unit corresponding to the position of d2 is at $2.50 per unit and that the quantity at point E2 is exactly 5 units per hour. Calculate total revenues and total variable costs at point E2 and explain why it is called the short-run shutdown point.

Short answer

The total revenues and total variable costs at point $E_2$is$12.5$.

Step-by-step solution

Introduction

This point is known as the closure point of the organizations. On the off chance that the all-out revenue goes past this point, the firm can pay the proper expenses from the extra revenue. Right now, the organizations will close down the creation and leave the market

Explanation

Calculating the total revenue using,

$TR=P\times Q$

role="math" localid="1653381835872" $2.5\times 5=\$12.5$

Calculating the total variable cost,

role="math" localid="1653381841026" $$\begin{gathered} AVC\times Q \\ 5\times 2.5=\$12.5 \end{gathered}$$

The point when the complete revenue is equivalent to adding up to variable expenses is known as the shutdown point. As of now, the firm is impassive about whether to create or close down. In the event that the all-out revenue goes past this point, the firm can pay out fixed costs from the extra revenue. Right now, the organizations will close down the creation and leave the market.