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Unformatted text preview: the rectangle ABCD in the graph above. If the price changes such that it becomes p*< Min AVC the economic profit is negative and the firm is better off shutting off If the price changes and it finally equates the Min AVC the economic profit is null and the firm is indifferent between staying or leaving the market! The min of the AVC is called shut down point . Graphically: AVC q*=4 q D f p*=10 $ MC A B C D Min AVC 2 AVC(q*)=26/4 We can then trace out the short-run supply curve for a firm (in red in the graph above)! A firm that operates in the short-run can still make a negative profit accounting for the fixed costs (blue area, in the graph below). q 1 * q 3 * q 2 * q $ AVC MC q * q $ MC AVC ATC 3 p 1 p 2 p 4 p* ( 0, p 4 ) (q*,p*) (q 1 *,p 1 *) (q 2 *,p 2 *) p* (q*,p*)...
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This note was uploaded on 04/29/2008 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.
- Spring '08
- Perfect Competition