ECON 211 Chapter 14 Revenues

total revenue=

P*Q

first thing to know how revenues are different at different levels of output

what average revenues are at different levels of output (AR)

second thing to know how revenues are different at different levels of output

hhow do revenues change if you produce additional unit of output (MR)

AR=

TR/q

how AR differ across output:

AR is at market price

Marginal revenue

change in total revenue due to change in q of output

MR=

change in TR/q

How MR differ across output:

in a competitive market, MR is at market price

if MR>MC,_____ to increase profit

increase q

if MR<MC,_____ to increase profit

decrease q

quantity that maximizes profit satisfies when

MR=MC

for firms in a competitive market, the quantity that maximizes profit satisfies when

P=MC

Profit=

(P-ATC)q

shutdown decision

SR decision to stop producing when firms treat fc as sunk cost

for shut down, compare marginal benefits of producing: TR with

marginal cost of producing:VC

Shut down IF

P<AVC

exit decision

LR decision to leave the market with only variable inputs

for exiting, compare marginal benefits of producing:TR with

marginal cost of producing:TC

leave the market IF

P<ATC

long run equilibrium in competitive market

profit=0

In the lr, p=atc or profit= 0 because

you are not better off doing something else with resources

quantity at the minimum ATC is

efficient scale