AlibomicsMoney and Economics
CONCEPT LESSON

Shutdown condition

In the short run, stopping production may minimise losses when revenue cannot cover avoidable costs.

Why it matters

A rational short-run choice can still involve losses. Compare alternatives rather than comparing one option with an unattainable zero-cost scenario.

A worked example

Revenue is £800, avoidable costs £1,000 and unavoidable fixed costs £500. Producing loses £700; stopping loses £500. Shutdown saves £200.

Illustrative example · simplified assumptions

A common mistake

Treating unavoidable costs as savings from shutting down.

Where the idea needs care

This is a simplified short-run decision, not the same as permanently leaving a market.

Apply the idea

Explain this concept using a different example from your spending, work, business or a policy debate. State what stays fixed and what could change the result.

CHECK YOUR UNDERSTANDING
In the worked example, how much does shutdown save?

Read the answer and explanation

£200. This is a simplified short-run decision, not the same as permanently leaving a market.

See the supporting infographicShutdown condition: In the short run, stopping production may minimise losses when revenue cannot cover avoidable costs.

The written explanation above is the main lesson. This image offers another way to remember it.

Sources and further study

Examples and explanations by Alibomics. Numeric illustrations are not current market quotations.