Chapter 9

Chapter 9 - If price < ATC the firms incurs a...

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Chapter 9 Optimal Output rule— says that profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost. Price-taking firm’s optimal output rules— says that a price taking firm’s profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost of the last unit produced. If Price > ATC the firm is profitable If Price = ATC the firms breaks even
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Unformatted text preview: If price < ATC the firms incurs a loss Profit = ( P-ATC) X Q Minimum ATC = break even price long run P > min ATC = profitable P < min ATC = unprofitable P = ATC = than they break even Minimum AVC = shut down prive short run P > min AVC = firm produces in short run P = min AVC = firm indifferent between producing in short or not. Covers variable cost P < min AVC = firm shuts down in short run, does not cover variable costs...
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