Which price is defined as the point where average revenue equals average total cost, indicating that the firm will shut down in the long run if not met?

The break-even price is the point at which a firm's average revenue precisely equals its average total cost. At this price level, the firm covers all its costs, including both fixed and variable costs, but does not make any economic profit or loss. This is significant in long-run decision-making for firms, as it indicates the minimum level of output and sales price that is sustainable for the business. If a firm consistently operates below this price, it would be unable to cover its costs and would eventually need to shut down in the long run.

Economic theory posits that firms aim to maximize profits, and when prices fall below the break-even point, they face the prospect of losses. Hence, the break-even price is crucial for a firm’s viability in the market. If a firm cannot achieve this price, it will need to either reduce costs, improve efficiency, or exit the market altogether.

Understanding this concept is essential, as it helps delineate between scenarios where firms can remain operational versus those where they are forced to shut down if they cannot cover their costs.