Rule 1: A firm should not produce at all if, for all levels of output, total revenue (TR) is less
than total variable cost (TVC). Equivalently, the firm should not produce at all if, for all levels
of output, the market price (p) is less than average variable cost (AVC). [ 22 ]We have been looking at the firm’s decision about whether to produce at
all by comparing total revenues with total variable costs. Equivalently, we
can examine this decision by comparing the market price with average
variable cost.
The lowest price at which the firm can just cover its average variable cost,
and so is indifferent between producing and not producing, is called the