ECO2030 nd 1 Edition Lecture 31 Outline of Last Lecture I Profit Maximizing Outline of Current Lecture II Shutdown III Exit Enter Market Current Lecture When Should a firm Shutdown eg Close a store at night Shutdown A short run decision to not offer services produce goods decision of when to shut down for a certain amount of time which depends on the market conditions during the time a firm decides to shut down Firms decision depends on TR and VC Shutdown if TR TC for that period of time Stay open if TR TC for that period of time In the Short run a competitive firm s supply curve S is the same as its Marginal Cost Curve MC Sunk Cost a cost that has already been spent and cannot be recovered e g Bulk supplies factory rent factory technologies etc Example of when to shut down Restaurant should stay open for lunch if its revenue from staying open for that time is than its variable costs we do not include fixed costs in this decision because these are being paid regardless if the firm is even producing These 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 When should a firm leave the market for good Exit Exit A long run decision whether to exit the market or not If they exit a firm will rid itself of all costs no chance to make a profit but no losses A firm should exit if Revenue than Total Costs Exit if TR TC this is the same as P AVC in the reverse A firm should Enter if TR TC or P ATC Note we include both fixed and variable costs in this decision
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