What two curves intersect at the shutdown point?

• A. The marginal cost curve and the average fixed cost curve
• B. The average cost curve and the marginal revenue curve
• C. The intersection of the average variable cost curve and the marginal cost curve
• D. The average variable cost curve and the marginal cost curve

Answer: (D)

In the short run, the shut-down decision hinges on covering variable costs. Fixed costs are sunk in the short run, so you only care about variable costs when deciding whether to keep producing. The intersection point of the marginal cost curve and the average variable cost curve is the quantity where AVC is minimized. That minimum AVC represents the lowest price at which the firm can cover its variable costs. If the market price falls to or below that level, the firm should shut down; if it’s at or above, it can cover variable costs and continue producing. So the curves that intersect at the shutdown point are the marginal cost curve and the average variable cost curve.