Tuesday, August 30, 2011

Past Shutdown at GM

General Motors shutdown thirteen plants in 2009 due to declining demand. As I show in some of my economics classes, a firm has an incentive to shutdown (temporarily cease operations) if the price of the product is less than the per unit production costs (average variable cost). One way this can happen is if the demand for the product/service declines (shifts to the left), reducing the product price below average variable cost.

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