<Dd> AVC + AFC = ATC . (\ displaystyle (\ text (AVC)) + (\ text (AFC)) = (\ text (ATC)).) </Dd> <P> A firm would choose to shut down if marginal revenue is below average variable cost at the profit - maximizing positive level of output . Producing anything would not generate revenue significant enough to offset the associated variable costs; producing some output would add losses (additional costs in excess of revenues) to the costs inevitably being incurred (the fixed costs). By not producing, the firm loses only the fixed costs . </P>

When does a firm's average variable cost exceed the average total cost