Lecture 14 - 11/2/2009 11 In the long run, Profits 0 or...

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11/2/2009 1 MC ATC •P>ATC LONG RUN ANALYSIS Profits 11 ± In the long run, Profits 0 or firm exits industry ± Profits = TR - TC = pQ - (ATC Q) = Q( p - ATC) ($/unit) Quantity AVC P = Min ATC •P < ATC •TR < TC •Profit < 0 EXIT P > ATC •TR > TC •Profit > 0 PRODUCE P < Min ATC P > Min ATC break-even price ± Should firm ever operate with a loss? ± Is there a price so low that the firm shuts down, but does not exit the industry? ± Short run ± profits operating = TR - TC fit h t d FC ± Short run - operate if TR VC Qualifications 12 ± profits shut down = - FC operate if TR - TC -FC TR - VC - FC TR - VC 0 TR VC ± operate if p AVC 12 ± TR VC pQ AVC Q ± Short run - operate if TR VC p Short Run ± FC is loss if firm shuts down MC ($/unit) ± loss minimized by producing FC VC Loss TR Q * Quantity ATC Market Price ± FC is loss if firm shuts down ± shut down if p < AVC Short Run 12 ± TR VC pQ AVC Q ± Short run - operate if TR VC p MC ($/unit) FC VC Q * TR Loss ± loss minimized if firm shuts down Quantity Market Price Short Run MC ATC SHORT RUN ANALYSIS 13 ± TR VC or firm shuts down ± TR VC p ($/unit) shut-down price Quantity AVC P = Min AVC P < Min AVC P > Min AVC •P > AVC •TR > VC •Profit > - FC
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This note was uploaded on 03/21/2010 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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Lecture 14 - 11/2/2009 11 In the long run, Profits 0 or...

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