Understanding the Short-Run Shutdown

Students are usually taken aback by the concept that the output level that maximizes profit may result in losses (negative economic profit). How does this happen? Is it a sustainable scenario in the long run?

Revisit "Shutdown Point at How Perfectly Competitive Firms Make Output Decisions" in the text you just read in this section, "How Perfectly Competitive Firms Make Output Decisions," and analyze it carefully. You can also review the shutdown point by watching this video on how a baker decides whether to keep their bakery open or closed in the short run.