Class Notes - 11-5-07

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

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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.
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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 &gt; AVC (See graph) B. Firm should Shutdown if: The firm cannot cover all variable costs or any of fixed costs (Loss if open) &gt; (F.C) 1. (P) &lt; (A.V.C) (See graph)...
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