shutdown price

shutdown price

a market price that is so low that a profit-maximizing supplier is unable to recoup the SHORT-RUN unit VARIABLE COST of producing a product. At this price, the firm is unable to generate sufficient revenue to make any CONTRIBUTION towards its FIXED COSTS and cannot even cover its variable costs so that losses are incurred, necessitating a decision to close down its production facilities. See LOSS, LOSS MINIMIZATION.
References in periodicals archive ?
Twenty-three dollars a barrel is actually the shutdown price for tarsands plants.
Therefore, when a shutdown price exists quasi-rents equal to producers surplus and changes in quasi-rents, due to a multiple price change, are reflected in changes in producers' surplus (Just et al.
Note here that if a shutdown price did not exist then [R.
Although, in theory, the welfare estimates from the sequential approach and the one-market approach, beyond the assumptions related to the existence of a shutdown price, are equal, in practice, these two methods differ substantially due to data quality and due to the necessity of assuming a functional form for the supply and demand curves.
in horizontal markets where a shutdown price does not exist, the results obtained from the multi-market sequential approach still offer more accurate estimates of the welfare change.