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The shut-down point is reached when revenue fails to cover

  • A.the depreciation charge alone
  • B.the variable cost plus any avoidable fixed cost
  • C.the total cost including all fixed cost
  • D.the variable cost alone

Answer: B

Continuing to operate is worthwhile as long as it covers the costs that closing would avoid, since the unavoidable fixed costs continue either way. Comparing revenue with total cost would close plants that are still worth running.

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