Ch24_PCfirmoptions

Ch24_PCfirmoptions - MICROECONOMIC PRINCIPLES Short run...

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MICROECONOMIC PRINCIPLES Short run Possibilities for the Competitive Firm Overall results if at q* : P > ATC, then the firm is making economic profits (scenario one). P = ATC, then the firm is making normal profits and stays open (scenario two). AVC < P < ATC, then the firm is losing money but would have greater losses if they shut down so they remain open (scenario three). P = AVC, this is firms shut down point. If price falls below AVC then firm will decide to shut down (scenario four). ---------------------------------------------------------------------------------------------------------------- SCENARIO ONE: Firm is making economic profits. - firm is a price taker, P is dictated to them by the market. - profit maximizing output level for firm (q*) is output level where MR = MC. - at q* the profit per unit is P – ATC (for this examples it is 5-4 = $1). - total profits are just (q*)(profit per unit), or the entire shaded area on the graph. SCENARIO
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Ch24_PCfirmoptions - MICROECONOMIC PRINCIPLES Short run...

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