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Unformatted text preview: 1 Quantity ($) MC AVC ATC P = Min ATC •P < ATC •TR < TC •Profit < 0 EXIT •P > ATC •TR > TC •Profit > 0 PRODUCE LONG RUN ANALYSIS P < Min ATC P > Min ATC Long Run Long Run break-even price u Profits ‡ 0 or firm exits industry u Profits = TR - TC = pQ - (ATC • Q) = Q( p - ATC) u Should firm ever operate with a loss? u Is there a price so low that the firm shuts down? u Short run u profits operating = TR - TC u profits shut down = - FC operate if TR - TC ‡- FC TR - VC - FC ‡- FC TR - VC ‡ TR ‡ VC u Short run - operate if TR ‡ VC Qualifications Qualifications u operate if p ‡ AVC u TR ‡ VC pQ ‡ AVC • Q u Short run - operate if TR ‡ VC u loss minimized by producing p ‡ AVC FC VC Loss Short Run Short Run Quantity ($) MC AVC ATC Market Price TR Q * u FC is loss if firm shuts down 2 u FC is loss if firm shuts down u shut down if p < AVC FC VC Quantity ($) MC AVC ATC Market Price Short Run Short Run Q * TR Loss u loss minimized if firm shuts down u TR ‡ VC pQ ‡ AVC • Q u Short run - operate if TR ‡ VC p ‡ AVC Short Run Short Run shut-down price Quantity ($) MC AVC ATC P = Min AVC SHORT RUN ANALYSIS P < Min AVC P > Min AVC •P > AVC •TR > VC •Profit > - FC PRODUCE •P < AVC •TR < VC •Profit < - FC...
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This note was uploaded on 03/12/2010 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.
- Fall '08