Class Notes - 11-5-07

Class Notes - 11-5-07 - • The loss of shutdown is = F.C A...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Microeconomics – Class Notes – 11/5/07 II. Profits A. Profit = TR – TC Profit = (p * q) – (ATC * q) Profit = q * (P – ATC) B. Positive Profit P > ATC C. Negative Profits or Loss P < ATC D. Breakeven ; Profit = 0 Price = ATC Not a bad thing Includes our O.C, so this option is as good as our next best alternative E. Graphically 1. P > ATC III. Shutdown Rule If Profit < 0 and if P < ATC Compare loss if open to loss if the firm shuts down.
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: • The loss of shutdown is = F.C A. The firm should stay open if: 1. If it can cover all of its variable costs and some of the fixed costs 2. Should Stay open if the loss is less than F.C 3. P > AVC (See graph) B. Firm should Shutdown if: • The firm cannot cover all variable costs or any of fixed costs • (Loss if open) > (F.C) 1. (P) < (A.V.C) (See graph)...
View Full Document

This note was uploaded on 04/15/2008 for the course ECON 100 taught by Professor Stephaniemartin during the Fall '07 term at Allegheny.

Ask a homework question - tutors are online