microbook_3e-page116

microbook_3e-page116 - $1200 $2000 + 1600 $3600 $0 Total...

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Unformatted text preview: $1200 $2000 + 1600 $3600 $0 Total Rev ($1.50x800) $2000 Fixed Costs 0 Variable Costs $2000 Total Costs –$400 –$2400 $2400 Total Rev (Q = 0) $2000 Fixed Costs + 1600 Variable Costs $3600 Total Costs Oper. Profit/Loss –$2000 Total Profit/Loss When TR < VC, the firm’s total loss is lower when it shuts down. $800 –$1200 Profit/Loss + losses minimized by shutting down (TR < VC) shut down operate at p = $1.50 Loss Minimization $0 Total Rev ($3x800) $2000 Fixed Costs 0 Variable Costs $2000 Total Costs Oper. Profit/Loss –$2000 Total Profit/Loss + losses minimized by operating (TR > VC) shut down operate at p = $3 Total Rev (Q = 0) Fixed Costs Variable Costs Total Costs Profit/Loss Short Run Condition TR > TC Operating profit (TR VC) Operating loss (TR VC) Short Run Decision P = MC: operate P = MC: operate (losses fixed costs) Shut down: (losses fixed costs) Contract firms exit Contract: firms exit Long Run Decision Expand: new firms enter Firm Decisions in the Short and Long Run When TR > VC, the firm’s total loss is lower when it continues operating – in the short run. Profits Losses Losses Page 116 ...
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