Cost benefit principle continue an activity if and only if the marginal benefit is greater than or equal to the marginal cost MB MC If marginal benefit is greater than marginal cost then you continue to do that activity Important Formulas TC FC VC ATC TC Q AVC VC Q MC change in TC change in Q P MR MB If P ATC profit if P ATC loss if P AVC should shut down Profit P ATC x Q OR profit Revenue Cost Revenue P x Q Sellers cannot determine the price to sell a product they can only decide how much to produce at the market price Perfectly Competitive Market markets in which individual firms have no influence over the market prices of the products they sell A lot of sellers and buyers Easy entry and exit Price Taker No market power can only decide how much to produce at that price Demand Curve is horizontal P MR If more sellers enter the market then the supply curve will shift to the right and the cost will decrease When P ATC profit When P ATC loss When P ATC the factory should not shutdown if P is still than AVC When P AVC they should shut down
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