Shutdown Point

AAA

DEFINITION of 'Shutdown Point'

A point of operations where a firm is indifferent between continuing operations and shutting down temporarily. The shutdown point is the combination of output and price where a firm earns just enough revenue to cover its total variable costs.

INVESTOPEDIA EXPLAINS 'Shutdown Point'

If a firm is operating at its shutdown point, it is usually operating at a loss. The concept is that if a firm can produce revenue greater or equal to its total variable costs, it can use the additional revenue to pay down its fixed costs. This assumes that fixed costs will still be incurred when a firm shuts down, such as lease contracts or other lengthy obligations. In other words, when a firm can earn a positive contribution margin, it should remain in operations, despite an overall loss.

RELATED TERMS
  1. Discontinued Operations

    A segment of a company's business that has been sold, disposed ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the ...
  3. Variable Cost

    A corporate expense that varies with production output. Variable ...
  4. Revenue

    The amount of money that a company actually receives during a ...
  5. Economics

    A social science that studies how individuals, governments, firms ...
  6. Microeconomics

    The branch of economics that analyzes the market behavior of ...
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Fundamental Analysis

    Measuring Company Efficiency

    Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period.
  3. Fundamental Analysis

    Spotting Profitability With ROCE

    This straightforward ratio measures whether a company is efficient, money-making or neither.
  4. Economics

    What Are Economies Of Scale?

    Is bigger always better? Read up on the important and often misunderstood concept of economies of scale.
  5. Investing

    What Tech Companies Seeking Funding Must Overcome

    Tech companies face a unique set of challenges, including a need for timely responses to changes in technology and difficulty recruiting the right talent.
  6. Economics

    Vietnam -- New Asian Hot Spot For Tech Investment

    Vietnam now has a rapidly expanding tech sector that's attracting investors from around the globe due to low business costs and highly skilled workers.
  7. Savings

    How Microeconomics Affects Everyday Life

    Microeconomics is the study of how individuals and businesses make decisions to maximize satisfaction. Microeconomic principles can describe many everyday experiences. We use renting a New York ...
  8. Personal Finance

    Why Are Tesla Cars So Expensive?

    What makes Tesla cars so expensive? Short supply and pricey parts is a good place to start.
  9. Economics

    What is M1?

    M1 is a measurement of money supply that includes all hard currency, plus demand deposits such as checking accounts.
  10. Taxes

    Business Taxes: Not Paying More Than You Have To

    If you're a small business owner, note these potential tax deductibles so that you don't pay taxes that could have been extra revenue in your account.

You May Also Like

Hot Definitions
  1. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  2. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  3. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  4. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  5. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
  6. Currency Carry Trade

    A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase ...
Trading Center