DAY 2 PP Graphing Perfect Competition.ppt

DAY 2 PP Graphing Perfect Competition.ppt - Warm-Up •...

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Unformatted text preview: Warm-Up • Draw a correctly labeled graph showing a profit-maximizing, perfectly competitive curve producing at its minimum average total cost. Daphne’s Apparel Shop • Use the optimal output rule to find the level of output that maximizes profit if the market price is $9 each. • Calculate her economic profit or loss. • Repeat assuming that the market price is $6 each. Q TFC TVC TC 0 $5 $0 $5 1 $5 $6 $11 2 $5 $11 $16 3 $5 $13 $18 4 $5 $18 $23 5 $5 $25 $30 6 $5 $34 $39 7 $5 $49 $54 8 $5 $68 $73 MC Graphing Perfect Competition Another look at profit… We know that … TR – TC and that … QTR/Q – TC/Q) and that … TR/Q=P and TC/Q=ATC therefore … So what’s the Firms are profitable when… connection? Firms operate a loss when… Breakeven point Should firms operate at a loss? • • • • Answer is “maybe”… Fixed costs must be paid … So they are “sunk” Variable costs must be met We need the shut down •price... Relationship between P and AVC • Shut down if … • Keep producing if … Who shuts down? ...
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