ECON 1100 1nd Edition Lecture 20 Outline of Last Lecture I. Perfectly Competitive IndustryII. Looking at GraphsIII. Output for Maximizing ProfitOutline of Current Lecture I.Short-Run EquilibriumII.Are you doing well?III.Should you shut down?Current LectureI. Short-Run EquilibriumIn long-run company can scale up or down whole operation, no limitsCan enter/exit industryMeasuring same stuff, just on different scales: Q vs. q; P is sameReal question: how much to sell? Answer – use MC & ATC curvesProfit-maximizing rule: find q* such that P=MC. Why?Suppose P>MC, so P – MC > 0, therefore need to produce moreSuppose P<MC, so P – MC < 0, therefore need to produce lessII. Are you doing well?Economic profit = revenue – total econ. costRevenue = p * qTotal cost = ATC * qProfit = Rev – costThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Ex. 2Profit is actually a lossCan’t raise price because then no one willbuyLower cost or q produced won’t improvesituation, just make things worseIII. Should you shut down?q* = 1000 unitsP = $5/unitFirm produces at q*Revenue = $5000Variable costsLabor = $2000Materials = $1500Fixed costsLease = $2000Total cost = $5500Economic profit -$500Will shutdown be the better option?Revenue = $0Variable cost = $0Fixed cost = $2000Economic profit = -$2000Shut down loses you more money!Operating profit = Revenue – TVC = 0 @ shutdown vs. $1500 @ q*If TR – TVC > 0 then keep operating… P >
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