Plant shut down decision
a firm will choose to implement a shutdown of production when the revenue received from the sale of the goods or services produced cannot even cover the fixed costs of production. In that situation, the firm will experience a higher loss when it produces, compared to not producing at all.
Technically, shutdown occurs if marginal revenue is below average variable cost at the profit-maximizing positive level of output. Producing anything would not generate revenue significant enough to offset the associated variable costs; producing some output would add losses (additional costs in excess of revenues) to the costs inevitably being incurred (the fixed costs). By not producing, the firm loses only the fixed costs.
A decision to shut down means that the firm is temporarily suspending production.
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