Chapter 14 Notes

Chapter 14 Notes - Long Run decision to Exit/Enter Exit if...

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Econ Midterm 2: 3,7,8,9,13,14,15 Need notes for 14,15 Perfect competition * can freely enter /leave in the LONG RUN - Many buyers/sellers (price takers) - Similar goods ex. Fruits - Awareness of $ and technology Revenue PxQ = total revenue Price is not influenced by quantity sold, thus revenue is directly proportional to OUTPUT Average revenue : total revenue/ quantity sold = revenue generated per unit, which is consistent since price does not change = PRICE * Proof: pxQ = TR TR/Q =P Marginal revenue : extra revenue gained from selling an additional unti = P * MR DARP Profit maximization condition : TR- TC *as long as MR>MC an increase of Q = increase Profit * MR=MC
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Marginal cost above variable cost acts as the firms supply curve Short run Decision to shutdown * shutdown = short run, exit= leave - when TR<VC / P<AVC - Minimum point of AVC aka shutdown/startup price Sunk cost: cost that has been committed and CANT be recovered *nothing can be done, IGNORE IT
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Unformatted text preview: Long Run decision to Exit/Enter Exit if TR&lt;TC = P &lt; ATC *Opposite for entering Profit is TR- TC = PQ Q*ATC = (P-ATC) X Q Case B the firm would exit the market since it cannot even cover its ATC Long Run Market Supply Enter when theres profit, exit when theres loss EVENTUALLY they make 0 ECONOMIC PROFIT (takes into account opportunity costs too) *P=ATC Has firms working at min. atc (efficient scale) ACCOUNTING PROFIT IS STILL POSITIVE Demand shift in Long/Short Run Autoregulation, price returns to original point, but quantity might increase/decrease Two reasons why the Long Run supply could curve upwards: *means it needs a higher price to induce a larger quantity supplied 1) Resource for input is limted 2) Different costs (the highest priced one is the seller that would leave market if the price was any lower/intersects ATC everyone else makes a profit)...
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Chapter 14 Notes - Long Run decision to Exit/Enter Exit if...

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