In the principle of economics, the criterion of whether a manufacturer continues to operate is the relationship between the average variable cost and the price. Variable cost is a part of total cost, and price and cost complement each other, which is the sum of total cost and profit.

if the average variable cost is lower than the price, production should be continued to supplement the fixed cost. If they are equal, it doesn't matter. If il is higher than that, the production should be stopped. Business is deserted, as long as the income is greater than the variable cost, it is still profitable.

Extended data

Principle analysis:

1. Variable cost is a part of the total cost, in which variable cost refers to the cost items that change with the change of output in the total cost, mainly the values of production factors such as raw materials, fuel and power.

2. When the output increases in a certain period, the consumption of raw materials, fuel and power will increase proportionally, and the costs incurred will also increase proportionally, so it is called variable cost. Variable cost equals total cost minus fixed cost.

3. Price and cost complement each other, which is manifested as the sum of total cost and profit. For an enterprise to survive and develop, it is necessary to sell goods, recover the cost and make profits, so as to ensure reproduction and expand reproduction.

4. Price and cost complement each other. Before the reform of the price system, most enterprises in China adopted the cost valuation method, which can be said that the cost determined the price in this period.