14SupplyAndShiftingCostsHandout

14SupplyAndShiftingCostsHandout - Long Run u u Profits 0 or...

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1 Quantity ($) MC AVC ATC P = Min ATC •P < ATC •TR < TC •Profit < 0 EXIT •P > ATC •TR > TC •Profit > 0 PRODUCE LONG RUN ANALYSIS P < Min ATC P > Min ATC Long Run break-even price u Profits 0 or firm exits industry u Profits = TR - TC = pQ - (ATC Q) = Q( p - ATC) u Should firm ever operate with a loss? u Is there a price so low that the firm shuts down? u Short run u profits operating = TR - TC u profits shut down = - FC operate if TR - TC - FC TR - VC - FC - FC TR - VC 0 TR VC u Short run - operate if TR VC Qualifications u operate if p AVC u TR VC pQ AVC Q u Short run - operate if TR VC u loss minimized by producing p AVC FC VC Loss Short Run Quantity ($) MC AVC ATC Market Price TR Q * u FC is loss if firm shuts down
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