Total Cost is the sum of Fixed Cost and Variable Cost (FC + VC = TC) Shut down in the short run and produces No Output The Minimum AVC (Average Variable Cost) is the Shut Down Point The Minimum ATC (Average Total Cost) is the break even (TR=TC) or Normal Profit Profit Max Determaination Summary Pure Competition: P=MR and MR=MC Al other types of competition: MR=MC, but P is not =MR Economic Profit: MR=CM, above lowest ATC (TR>TC) Normal Profit: MR=MC, at ATC (TR=TC) Acceptable short run loss: MR=MC, below ATC but above lowest AVC (TR<TC, but TR>VC) Shut Down in short run: MR=MC, below lowest AVC (TR<VC) Need to know: The determinants of demand (tastes/preferences, income, prices of related goods: Substitutes/complements, Expectations, number of buyers) and of supply (Number of producers, resources prices or production costs, Expectations, Subsidies/Taxes/Government Regulations, Technology) If Demand shifts right: Equilibrium price increases/Equilibrium Quantity increases. If Left: both go down. If Supply shifts right: Price decreases/Quantity increases, If left: Price increases/Quantity decreases
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