The firm decides to close down in the in which the price of the product decreases to the cost of the product. For example: if a price of the product is Rs1000 But the cost of the product is 1200 in this case firm will close.
What is Marginal cost?
Marginal cost refers to the additional cost for producing one additional product. when the marginal cost of the product incrases to its marginal revenue then it leads to the loss to the firm in that case firm will try to reduce its cost or either close down.
If the price of a pen is 10Rs and it takes 15Rs to produce the pen then there is a loss of 5r to the firm. In that case if the firm is not able to lessen its cost then it will have to closedown in the short run.
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