Microeconomics – 10-17-12P S1 $ MC ATCAVCP2 p2P1 D2P1 D1 Q1 QIndustry Firm q1 q2Show PC in long run. Shaded = economic profitWhen a firm is making an economic profit in perfect competition because demand has gone up, new firms will join the market, bringing down the price.(not drawn) An increase in technology: On the industry side: supply shifts to the right. This leads to theprice going down and the quantity going up. Draw p2 across to the firm side. Label as P2, mr2, d2 on firm side. Everything shifts southeast on the firm chart. Make sure MR and MC still intersect.(Not on test) – Show when profit maximization occurs when MR = MC using math. 1. Profit: Where TR – TCProfit: P x Q – AC x qaq^3 – bq^2 + cq – dq^3 – eq^2 – fq +g ( TR )( TC )d(profit)/dq: 3aq^2 – 2bq + c – 3dq^2 -2eq – f = 03aq^2 – 2bq – 3dq^2 – 2eq = f-cTR = aq^3 – bq^2 +cqTC = dq^3 + eq^2 +fq +g3aq^2 0 2bq + c = 3dq^2 + 2eq + f3aq^2 – 2bq – 3dq^2 – 2eq = f – cI have no idea what this means and it's not on the test.Shut Down Rule – Minimum of AVC is shutdown point. If you go below, shut down so you just pay average fixed cost, but not variable cost.$ MCATC
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