Importance of fixed and variable cost

• Decision to shut down the firm: If price of the output falls, it is not possible to recover FC and VC;
• S/he decides whether to continue of shutdown business: looks FC and VC; means

If less production or shut down: no VC but need to pay FC. The firm decides to shut down if the prices of the products are less than the AVCs. If the prices> AVC firm covers parts of fixed cost also.