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ch8_shut-down - ECN 221 Chapter 8 SR LR Decisions made by a...

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ECN 221 Chapter 8: SR & LR Decisions made by a PC Firm -- When to Shut Down and When to Leave the Market So far, we have observed the following: (Study hint: be able to explain why each of the following is true) 1. PC firms are price takers Marginal Revenue = Price 2. Maximum profit occurs where “marginal profit” = 0 MR = MC 3. 1&2 the profit maximizing condition for a PC firm can be written as: Price = MC That is, for a perfectly competitive firm to maximize its profits, it should produce output up to the point where P = MC . Using the data from the previous handout, plot farmer Bob’s Price, MR, MC, and ATC in the space below: Q (bushels) TR (P·Q) MR ( TR/ Q) TC ATC (TC/Q) MC ( TC/ Q) Profit (TR - TC) 0 0 - 50 0 - -50.00 100 800 8.00 800 8.00 7.50 0.00 200 1600 8.00 1500 7.50 7.00 100.00 300 2400 8.00 1800 6.00 3.00 600.00 400 3200 8.00 2300 5.75 5.00 900.00 500 4000 8.00 3050 6.10 7.50 950.00 600 4800 8.00 4500 7.50 14.50 300.00 700 5600 8.00 7000 10.00 25.00 -1400.00 (mc, mr, P) $ 18 16 14 12 10 A 8 6 E F 4 2 D C 0 MC B MR = Price ATC 100 200 300 400 500 600 700 Q How can you show profit in the above graph?
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