ECO2030 1nd 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 shortrun 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 Shortrun, 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 longrun 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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