Nearly all firms face the decision to shut down at one time or another. Firms that are unable to overcome losses or who do not benefit from continuing operations may be forced to discontinue production. Amacher and Pate (2019) state that the minimum or low point on the average variable cost (AVC) curve where it intersects the marginal cost (MC) curve is called the shutdown point because if the price falls below that point, the firm minimizes it losses by producing zero output. In the orange scenario, when the market price is $10, the firm is faced with the decision to remain open or temporarily shut down. The firm should close due to significant economic losses and little to no chance of recovering due to being in a perfectly competitive market. The graph indicates that the firm will incur a loss of $400 when marginal cost and marginal revenue are equal to $10 for a quantity of 10 oranges. At this market price, the firm should shut down. Although an increase in output will cause losses to reduce, the significant overall loss will not be recovered in the short run. In addition, firms in perfectly competitive firms do not influence prices and are known as price takers. If the firm sets a higher price to compensate for losses, its output will not be sold (Amacher & Pate, 2019). Furthermore, the principle of diminishing returns states that as more variable input is added to a set of fixed inputs, the resulting additions to output will eventually become more negligible. Supp